Precision Drilling Corporation · Precision is providing energy services to find and develop...

PRECISION DRILLING CORPORATION 4200, 150 – 6TH AVENUE SW CALGARY, ALBERTA, CANADA T2P 3Y7 T 403 716 4500 F 403 264 0251

www.precisiondrilling.com

Precision

Drillin

g Corporation

2004 An

nu

al Report

Precision_AR_Cover 3/11/05 8:55 PM Page 1

IFC Disclosure Regarding

Forward-Looking Statements

10 Report of the Chief Executive Officer

16 Precision At A Glance

18 Operations Review:

Contract Drilling


Energy Services


Rental and Production

38 Leadership in Safety

43 Community Relations

44 The Board of Directors

46 Corporate Governance

55 Management’s Discussion and Analysis

84 Financial Reporting

108 Supplementary Information

112 Corporate Information

113 Shareholder Information

114 Glossary

annual meeting The Annual and Special Meeting of the Shareholders

of Precision Drilling Corporation will be held in the Devonian Room

of the Calgary Petroleum Club, 319 – 5th Avenue SW, Calgary, Alberta,

Canada at 3:00 p.m. (Calgary time) on Tuesday, May 10, 2005.

Shareholders are encouraged to attend and those unable to do so are requested to

complete the Form of Proxy at their earliest convenience.

Disclosure Regarding Forward-looking Statements

Certain statements contained in this annual report, including statements which may contain words such as

“could”, “should”, “expect”, “estimate”, “likely”, “believe”, “will” and similar expressions and statements

relating to matters that are not historical facts are forward-looking statements including, but not limited

to, statements as to: 2005 expected cash flow from operations, future capital expenditures, including the

amount and nature thereof; oil and gas prices and demand; expansion and other development trends of

the oil and gas industry; business strategy including the 2005 strategy for our business segments; expansion

and growth of the Corporation’s business and operations, including the Corporation’s marketshare and

position in the domestic and international drilling markets and demand for the Corporation’s products

and services; and other such matters.

These statements are based on certain assumptions and analyses made by the Corporation in light of

its experience and its perception of historical trends, current conditions and expected future developments,

as well as other factors it believes are appropriate in the circumstances. However, whether actual results,

performance and achievements will conform with the Corporation’s expectations and predictions is

subject to a number of risks and uncertainties which could cause actual results to differ materially from the

Corporation’s expectations, including: fluctuations in the price and demand of oil and gas; fluctuations in

the level of oil and gas exploration and development activities; fluctuations in the demand for well

servicing, contract drilling and ancillary oilfield services; the existence of competitors, technological

changes and developments in the oil and gas industry; the ability of oil and gas companies to raise capital;

the effects of severe weather conditions on operations and facilities; the existence of operating risks

inherent in the well servicing, contract drilling and ancillary oilfield services; political circumstances

impeding the progress of work in any of the countries in which the Corporation does business; identifying

and acquiring suitable acquisition targets on reasonable terms; general economic, market or business

conditions, including stock market volatility; changes in laws or regulations, including taxation,

environmental and currency regulations; the lack of availability of qualified personnel or management; and

other unforeseen conditions which could impact on the use of services supplied by the Corporation.

Consequently, all of the forward-looking statements made in this report are qualified by these

cautionary statements and there can be no assurance that the actual results or developments anticipated by

the Corporation will be realized or, even if substantially realized, that they will have the expected

consequences to or effects on the Corporation or its business or operations. The Corporation assumes no

obligation to update publicly any such forward-looking statements, whether as a result of new information,

future events or otherwise.

Desi

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APPETITE FOR ENERGY

The world’s appetite for energy has never been greater.

Whatever the source, energy is at the heart of the

world’s progression. As companies globalize their

operations, energy is the currency that facilitates

success. As the world’s population grows and

developing nations assert their right to a better

standard of living through industrialization of their

economies, it is again energy that enables this growth.

This is part of an evolution that is inevitable. Until an

economic and reliable alternative can be found, oil and

gas will continue to be the energy standard of choice.

Precision intends to do its part in meeting this

increasing demand for energy by creating and

utilizing leading technology and employing the best

personnel available, in the field, its offices and its

research and operating facilities.

Precision_04_AR_Final 3/11/05 9:39 PM Page 1


GLOBALIZATION

Our horizons are broadening as globalization gathers

pace around the world. Much of the developing world

is reaping the benefits of the global market.

Technology is making it easier to communicate, live

and travel to more remote and distant destinations.

Energy and technological innovation feeds

globalization by providing the catalyst for developing

countries to harvest their potential.

Precision is an energy company, and while we are

not the one to own the energy source, we are the one

to service the companies that do. Whether they be

the enormous integrated multinational, the ever

more effective national oil company or the emerging

junior just finding their feet, Precision is there to help

them in their task.



POPULATION

There are more than six billion people in the world.

Over the last ten years, the global population has

increased by 14%. This growth challenges countries

to improve the standard of living for their people

through education and employment opportunities.

Companies with global operations are helping to

fulfill these needs by training local citizens in each of

the countries in which they operate.

Precision has a total workforce of over 12,000, and

operates in more than 30 countries worldwide. Over

90% of operations are run by local and regional

employees. Precision trains its employees carefully and

thoughtfully, while recognizing local cultural values.



INDUSTRIALIZATION

With the inevitable trend towards globalization

and population growth comes industrialization –

more cars, more computers, more infrastructure.

Operating these cars, powering these computers and

managing this infrastructure takes a lot of energy.

Since it was established in 1985, Precision has

grown to be the largest oilfield service provider

in Canada, and is growing worldwide. The people

Precision employs are experts in bringing energy

resources from far below the ground to the earth’s

surface, as well as engineering the tools that

make energy development safer, more efficient

and cost effective.



PRECISION DRILLING CORPORATION

There is one thing we can confidently predict – the

need for energy is not going to end anytime soon.

The current economic reality is that conventional,

non-renewable energy is what powers globalization,

population and industrialization.

Precision is providing energy services to find

and develop increasingly scarce oil and natural gas

resources. Precision serves the oil and gas industry

through its strong foothold in Contract Drilling,

emerging Energy Services and diverse Rental and

Production offerings. Precision is ready to help

meet the growing global demand for energy.


Report of the Chief Executive Officer

During 2004, Precision delivered improved safety

performance, achieved record net earnings and

continued with its bold global direction following

the successful integration of two major acquisitions.


report of the chief executive officer 11

Economic conditions for the energy industry showed significant improvement in 2004,

creating greater demand for the services offered by Precision. Presented with various

opportunities, Precision made two unique acquisitions that significantly advanced our

strategy to be a global oilfield service provider. We will continue to pursue opportunities

to expand our global presence in the future, however, we feel we are well positioned today

to participate in, and benefit from, the growing global demand for energy.

The acquisition of GlobalSanteFe’s land drilling business and Reeves Oilfield Services

Ltd., both in May, dramatically increased the size and scope of Precision. In both cases, we

acquired mature companies with longstanding business relationships as well as excellent,

knowledgeable people. I am happy to say that, in both cases, almost all of the people in those

two organizations have remained with Precision. As a result, we were able to quickly

integrate both groups and begin pursuing synergies and opportunities. We entered 2005

with over 12,000 employees with offices and/or operations in over 30 countries.

The US$316.5 million rig acquisition elevated our presence in the international land

drilling business significantly, adding 31 land rigs and an extensive fleet of specialized rig

transportation equipment to support operations. The rig equipment is extremely high

quality and ideally suited to the deeper, more complex subsurface conditions common to

certain international drilling environments. What made this acquisition even more

attractive to us was the reputation and the experience of the employees. The management

and employees associated with the acquired rigs have established the group as a long-term

and highly regarded player in the Middle East. The staff is almost fully indigenized as they

have made a huge effort to hire and train local people. This is a tremendous asset for

Precision going forward as we look to expand our operations internationally.

Our timing with the acquisition has proven to be extremely opportune. Within three

months of completing the transaction, pressure on global energy supply combined with

geopolitical instability pushed oil prices to unprecedented levels and set off a worldwide

increase in international exploration and production spending. Like any transaction of

this size and scope, it took time to complete the change in ownership however, the

merging of assets and melding of corporate cultures went very smoothly. Despite the

increase in scale, the rig utilization percentage for Precision’s international fleet for the

year remained steady. We anticipate improved utilization during 2005. International

drilling activity is also trending towards more and deeper development or exploitation

wells – an area where Precision has substantial expertise – as national oil companies begin


precision drilling corporation | 2004 annual report 12

to tap into known fields to accelerate the timing of production increases. We also see this

acquisition as a potential platform for our Energy Services segment to demonstrate its

capabilities in the international arena. With the combination of our international rigs and

the core competencies within Energy Services, we are uniquely positioned to offer our

customers an integrated package of products and services.

Our strategy for the international drilling segment in 2005 will be to leverage our

existing asset and knowledge base in deep drilling in order to maximize rig utilization

within existing markets where we have a presence. This will likely require some

redeployment of assets between countries. With rising demand for our equipment and

experienced employees, we also anticipate higher revenue and profit margins in return.

Continuing the 2004 drilling story, Canadian Contract Drilling experienced one of the

most active years on record as industry responded to high commodity prices and the

dynamics of a maturing North American basin – dynamics that entail a growing export

market for Canadian natural gas and oil to the United States. The Western Canadian

Sedimentary Basin contains a unique blend of hydrocarbon riches. From conventional light

oil and natural gas production to natural gas in coal and oil sands reserves, there is a magical

mix of prospects that keep the Canadian oilfield services industry vibrant and growing. The

equipment offering to serve this mix is evolving towards the more shallow, short duration

wells associated with oil sands and natural gas development, as well as the emerging

commercialization of natural gas in coal, or as sometimes called coalbed methane.

Our strategy for the Canadian Contract Drilling segment in 2005 will be to focus on

equipment requirements for customer production growth. Our existing fleet of land

drilling rigs, service rigs, snubbing units and conventional oilfield camps is representative

of roughly 30% of the Canadian industry. This core offering of equipment continues to

be a competitive match with conventional customer requirements. We will continue to

strengthen our existing equipment offering, and build new equipment to meet niche

market efficiencies. Canadian Contract Drilling provides ongoing leadership in safety and

environmental stewardship.

Rentals has undergone restructuring to transform its business model into a single

entity that provides multiple product lines to drilling, completion and production oilfield

activities in western Canada. During 2004, Rentals marginally improved revenue and

profitability while honing its product focus on wellsite accommodations, tubulars, well

control equipment and surface equipment. Rentals will look to increase market share and

product offering once management and information systems are firmly entrenched.



CEDA continues to be a leader in loss prevention, training, innovation and customer

service within the North American market for industrial services. In 2004, CEDA

continued to develop the competency-based training modules that are used to enhance

the skills and job satisfaction of its employees. As a result, the company was able to

provide its expanding Fort McMurray, Alberta customer base with better trained and

better equipped personnel. Revenue from our oil sands customers has grown over 250%

since 1999. With continued growth prospects forecast through to 2010, CEDA will

continue to add new products and services to meet customer requirements.

A key objective of our Energy Services segment has been to identify those strong

and sustainable trends in demand for products and services by energy companies and

identify practical, efficient means to satisfy this emerging demand. With the increasing

maturity of oilfields around the world, companies are looking for ways to cost effectively

develop existing fields. In Canada, where we have some of the most mature oilfields in

the world, we have seen this trend in operation for a number of years and have honed

our skills in satisfying this need as a core competence. The expanded line of formation

evaluation tools are ideal for the mature field environment and are a perfect complement

to our drilling tool portfolio including the rotary steerable tool which is being used very

successfully in mature offshore drilling environments. Formation evaluation is a critical

component of our customers’ production plans and our breadth of capability across

well types and well trajectories means that we provide our customers precisely what

they need across the spectrum of oilfield developments. Combining our drilling

expertise with a flexible approach to formation evaluation provides us with a solid

foundation for expansion.

The £92.4 million strategic acquisition of Reeves added a unique dimension to our

formation evaluation business. Their technology and operating model evolved from a

minerals logging operation with an emphasis on efficiency and modular systems to

provide fit-for-purpose services to a broad customer base. These tools and service lines

not only complement the existing Precision product lines for formation evaluation but

also provides a unique new offering of conveyance methods for delivering critical

subsurface information. The service offerings bring increased market penetration for

Precision in the North American land based wireline business. The combined portfolio

of services also provides the organization with a significant sustainable competitive

advantage in international markets.



We recognized that the group previously identified as Technology Services needed

to be further streamlined during 2004 with the objective of positioning this group

solidly in the mainstream of global drilling activity. With this in mind, we branded the

entities within this group under the name Precision Energy Services to provide a single

identity for our global services. Our strategy is to become the company that can provide

a comprehensive suite of products and services required by energy companies today to

drill and evaluate a well as quickly and efficiently as possible. We continue to focus our

efforts on those technologies and services that are needed in the development or

exploitation of the maturing oil and gas fields around the world.

In summary, all Precision’s operations performed well in 2004. The combination of

our growth initiatives and the improved economic fundamentals of our business

resulted in record financial results for the Corporation in 2004. Revenue increased by

22% in 2004 over 2003 to $2.3 billion and earnings per share increased by 29% to $4.22.

Of particular note is the continued improvement in the profitability of the Energy

Services segment, which saw operating earnings increase to $37 million from a loss of $4

million in 2003. Precision continues to hold to its conservative financial principles,

maintaining a strong balance sheet, exiting 2004 with a long-term debt to long-term

debt plus equity ratio of 0.24.

Looking forward, the fundamental drivers of drilling activity and demand for

Precision’s products and services appear to be very strong in 2005 and into 2006. Clearly

this will create significant growth opportunities for all areas of Precision’s operations. In

anticipation of this demand, we will be taking advantage of opportunities to further

consolidate our position internationally.

Another aspect of increased activity is the accelerated demand for qualified labour.

Our industry is particularly sensitive to the cyclicality of the drilling business especially

within the North American market, which has made it a challenge to attract people with

sufficient expertise and training to fill the demand. Internationally the challenge is

similar, however, the long-term nature of drilling contracts has resulted in the

development of a pool of professional drillers who have made this business their careers.

That being said, the demand for all oilfield services internationally is also expected to

outstrip the supply of equipment and experienced workers. We will increasingly focus on

recruiting, training and retaining our people so that we are able to respond to what could

be a long-term demand for drilling and related services.



There were four initiatives that I set for the Corporation in our 2003 report and we

accomplished those, and more. We executed two acquisitions seamlessly and integrated these

organizations very quickly. We broadened our financial base and maintained very strong

fundamentals through a very dynamic year. We continued to advance safety as a critical

awareness in all of our operations. We increased the market penetration of our specialized

equipment in the Canadian market and expanded our product offerings. We responded

rapidly to new opportunities in the international arena and optimized our activity in

Canada. We continued to streamline and focus Energy Services on profitable opportunities.

As I look forward to the current year, one thing is certain – Precision will not rest

on the laurels of its success in 2004. We still have a number of objectives to meet. The

first of those is to continue working towards Target Zero™ – Precision’s vision for an

incident-free work environment. Safety is a lead indicator of operational efficiency and

professionalism at Precision, and reducing the number of incidents to zero is our

ultimate aim. Our second objective is to continue the improvement in the Energy

Services segment. We have always said our goal is to elevate this group whereby it can be

financially self sufficient. Our third objective is to continue our international expansion.

We believe we have an ever-increasing role to play in the international market and we

will seek to expand the niche areas in which we can participate. Much has been written

about the strategic options that are open to us. Let me assure all our shareholders that

these will be examined where and when appropriate.

I would like to acknowledge and thank Mr. Murray Mullen, who resigned from the

Board in late 2004, for his many contributions to our Corporation. I want to thank

everyone in the organization for his or her contribution to our many accomplishments.

I look forward to another exciting and challenging year ahead.

On behalf of the Board of Directors,

HANK B. SWARTOUT

Chairman, President and Chief Executive Officer

March 9, 2005


canada

Eliminate workplace injuries – continue towards Target Zero™ safety culture.

Strengthen operational performance and productivity through clear standards,control and measurement.

Provide safe, cost effective drilling and well servicing solutions in conventionaland niche production areas.

Maintain large diverse customer base.

Integrate financial, customer and operations data through enterprise accounting software.

Grow equipment offering through partial reinvestment of operating cash flow.

Prioritize capital spending on equipment to match customer operating plans.

international

Increase utilization of existing assets through redeployment to areas ofconcentrated activity, particularly the Middle East.

Develop and market integrated service solution in concert with Energy Services’product lines.

Expand by leveraging knowledge base to areas of ‘best fit’ around the world.

Integrate financial, customer and operations data through enterprise accounting software.

Energy Services

Contract DrillingstrategyPRECISION AT A GLANCE

Extend Target Zero™ philosophy throughout Energy Services operations.

Train, retain and motivate a goal-oriented, team centred workforce.

Cultivate a culturally diverse organization.

Achieve a dominant presence in high-volume, return-justified markets.

Continue controlled geographic expansion to high growth, premium value markets.

Focus product development on low capital cost, high value systems.

Differentiate by packaging fit for purpose technologies.

Augment management infrastructure to support business growth.

Offer customers the most reliable and efficient service model in the industry.

Develop the well construction service business.

Build brand awareness.

ceda

Adopt a Target Zero™ philosophy.

Provide the highest quality, most efficient, 24/7 customer service.

Support expanding customer base.

Focus on growth in the Canadian oil sands sector.

Respond to growth opportunities in the U.S. market related to catalyst replacements.

Develop and employ new robotics technology to ensure safe workingenvironments.

Rentals

Respond to rapidly changing customer requirements and industry regulations.

Grow market share through relationship management.

Implement enterprise-wide accounting software to engage new business modeland standardize processes.

Develop capability to dispatch complete equipment offering from any location.

Eliminate workplace injuries – continue towards Target Zero™ safety culture.

Rental and Production

The Contract Drilling business segmentforms the foundation of Precision’s globaloilfield services business. The segment isseparated into Canadian and Internationaloperations. Precision has the largest rigfleet in Canada, and expanded itsinternational fleet by 153% in 2004.

The Energy Services business segmentprovides innovative oilfield technologyservices to oil and gas exploration andproduction customers throughout theworld. The segment is comprised of WirelineServices, Drilling & Evaluation Services,and Production Services.

The Rental and Production business segmentprovides essential value added products andservices to the energy sector and otherindustrial sectors in both Canada and theU.S. The two major subsidiaries within thissegment are CEDA InternationalCorporation and Precision Rentals Ltd.


canada

Dwayne Peters Senior Vice President, Canadian Drilling

Ron Berg Vice President, Operations

John Jacobsen Vice President, Operations

Doug Evasiuk Vice President, Marketing

Steve James Vice President, Health, Safety and Environment

Alex MacAusland General Manager, Precision Well Servicing

Steve Folk General Manager, Live Well Service

Clint Neufeld General Manager, LRG Catering Ltd.

Yook Tong General Manager, Rostel Industries Ltd.

Martin Byar General Manager, Columbia Oilfield Supply Ltd.

international

Ian Kelly Senior Vice President, International Drilling

Mike Simpson Vice President, Eastern Hemisphere Operations

Tim Braun Vice President, Western Hemisphere Operations

Darren Sutherland Commercial Manager, International Drilling

operations management services provided equipment and facilities

John King Senior Vice President, Energy Services

Rusty Petree Vice President, Corporate Development

Carel Hoyer Vice President, Product Development

Maarten Propper Vice President, Wireline Services

Dan Robson Vice President, Drilling & Evaluation Services

Gary Belcher Vice President, Production Services

Hazel Brown Vice President, Geoscience Services

Marwan Bitar Vice President, Eastern Hemisphere

Martin Kemp Senior QHSE Manager

ceda

Roger Hearn President, CEDA International Corporation

Brian Fitzmaurice Vice President, Industrial Services

Ian Martin Vice President, Mechanical Services

Greg Kraus Vice President, Catalyst Services

Marilee Jardine Director, Health & Safety

rentals

Gene Stahl Vice President, Precision Rentals Ltd.

Darcy Galenza Operations Manager, Technical Services Centre

Darcy Falardeau Operations Manager, South

Tom Facette Operations Manager, North

Bob Stockton Marketing Manager

Dan Lundstrom Safety & Environmental Manager

229 drilling rigs

239 service rigs

26 snubbing units

87 conventional and base camp offerings

40,000 sq. ft. warehouse and distribution facility

48,000 sq. ft.machine shop facility

47 land drilling rigs1 drilling rig operating on an offshore platform

canadian contract drilling

well completion and workover

snubbing

camp and catering

supply procurement and distribution

equipment engineering,manufacturing, repair and certification

international contract drilling

320 systems

197 systems

wireline services

• Cased hole services• Open hole services• Slickline services

174 vacuum trucks15 bundle blasters81 high pressure units6 combination units

2 SuperLance™11 dredges23 facilities in Canada9 facilities in U.S.

industrial services

• Chemical cleaning• Industrial vacuuming• High pressure water blasting• Dredging and dewatering

mechanical services

• Insulation• Bolting and machining• Mechanical, maintenance

and shutdown

catalyst services

• Confined space entry• Unidense technology• Densicat technology

oilfield rental services

• Surface drilling, BOPs, completion and production equipment

• Tubulars• Field and wellsite accommodations

156 systems

production services

• Controlled Pressure Drilling® (CPD®) including UnderbalancedDrilling (UBD)

• Well testing• RBOP®

drilling & evaluation services

• Measurement-While-Drilling (MWD)• Logging-While-Drilling (LWD)• Directional Drilling services (DD)• Rotary Steerable Systems (RSS)• Electromagnetic Telemetry (EM)

3,600 tanks, separators, etc.4,000 tools, valves, etc.10,000 drill string joints281 wellsite trailers


Contract Drilling

The Contract Drilling business segment forms the

foundation of Precision’s global oilfield services

business. Contract Drilling’s core Canadian business

units are firmly established, providing customers

drilling rigs, service rigs, snubbing units and camp

and catering services. With the acquisition of 31

international rigs during the year, Precision is now one

of the world’s largest land based drilling companies.


contract drilling 19

Contract Drilling’s core business units are

further empowered by Precision’s internal

Canadian infrastructure that specializes in

the manufacture, sale and repair of rig

equipment, the procurement and

distribution of oilfield supplies, and

offering camp and catering services.

Precision is Canada’s largest contract drilling and service rig contractor. Each of Contract Drilling’s core

business units has achieved a leading market share percentage ranging between 25% and 33%. Entering 2005,

Canadian Contract Drilling’s total fleet consists of 229 drilling rigs, 239 service rigs, 26 snubbing units and 87

camps. This comprehensive equipment offering allows us to meet almost any customer need, with complete

support from technical expertise to ancillary and replacement equipment.

The drilling rig fleet covers all depth ranges from a few hundred metres to 6,000 metres. Our service rig

fleet completes all forms of new wells and works over existing wells to optimize our customers’ oil and natural

gas production. Our snubbing units facilitate the servicing of oil and gas wells in production and are sometimes

used in drilling new wells. Our traditional five to six unit camps are entirely self-contained and come complete

with catering services. The camp offering is supported by base camp modules to feed and accommodate larger

groups of workers in remote geographic settings with high activity concentration.

The Contract Drilling business segment continues to evolve in Canada as we work with our

customers to better explore for and develop oil and natural gas in the Western Canada Sedimentary Basin

(WCSB). This basin has a complex mix of energy reserves – oil sands, heavy oil, coalbed methane, deep

gas, shallow gas and conventional oil – and challenging geography and weather conditions. The Contract

Drilling segment provides customers with a vast network of equipment and employee experience to

optimize drilling efficiencies and production levels. The depth of industry experience that we have

developed in Canada has allowed Precision’s Contract Drilling segment to transfer its skills and fulfill a

mandate to export to markets around the world with confidence. Precision’s Canadian business units have

the know-how, technology and highly skilled people to support international expansion as required.



Internationally, Precision is an integrated drilling company with 48 rigs, providing technologically

advanced, high performance drilling for conventional and high specification wells.

Precision’s international strategy is to maximize our rig count in select regions where we can leverage

our significant presence. In all cases, we have introduced, and will continue to introduce, high quality

equipment to each market, supported by excellent maintenance programs and highly skilled personnel.

Contract Drilling has been operating

internationally for over a decade and, in

May 2004, we made a giant step forward

with the acquisition of 31 worldwide

land drilling rigs.

This international expansion, coupled with record high energy prices amid surging global oil demand and

tight North American natural gas supply, resulted in a record year for the Contract Drilling segment.

Safety is the first priority for Contract Drilling. Our values regarding safety and training apply

equally to Canada and our international operations. We believe the value proposition – excellent

equipment, reliable maintenance programs, experienced people, and comprehensive safety protocols – is

important to all of our customers, no matter where in the world they operate.

Canadian Contract Drilling

2004 highlights

Contract Drilling’s Canadian business had a very successful year in 2004. With the advent of strong

commodity prices, customer demand built steadily throughout the year, allowing the business segment to

realize higher prices for our services. On a seasonally adjusted basis, drilling activity was high, dampened

only by wet weather conditions in the third quarter that hindered the movement and operation of drilling

rigs. This benefitted the following quarter as the backlog of work strengthened rig demand.

During 2004, Contract Drilling took steps to underpin long-term strength through re-investment in

its underlying asset base so that Precision will maintain its leading position in the highly competitive

WCSB. As the basin matures, our customers require greater efficiency and the best technology to discover

new reserves and tap under-exploited wells.



Strong and sustained, customer demand for drilling rigs has led to a record industry rig count in

excess of 700. During this industry up-cycle, our strategy is to reinforce our existing strong asset base to

optimize year-round competitiveness by only adding new rigs that meet niche market requirements and

set new performance standards. Precision’s Super Single® rigs demonstrate this strategy and versatility.

These rigs are superior in almost all shallow to medium depth well types and have niche capabilities that

allow them to outperform in applications that include slant or directional drilling for multiple well

programs from a single location (pad drilling). These rigs move quickly, deploy a small footprint to

minimize environmental impact, and promote safety through the automation of pipe handling.

An ongoing strategy for the Contract Drilling business segment is to work closely with our

customers to ensure they have the rigs they require. In 2004 we purpose-built three Super Single® pad rigs

for a Canadian-based global energy company for steam-assisted gravity drainage (SAGD) drilling into the

oil sands of northern Alberta. This project demonstrated Precision’s ability to fulfill an engineering

specific bulk order using Precision’s proprietary technology, while getting it done on time and on budget.

Precision’s subsidiary, Rostel Industries Ltd., provided over 60% of the components for these three Super

Single® rigs. Rostel’s core business is the manufacture and refurbishment of drilling rig components. This

ability is a competitive strength for Precision that allows us to exploit customer opportunities.

During 2004, Precision commissioned its second Super Single® Light drilling rig which is primarily

designed to support the increasing activity in the shallow gas drilling market. The Super Single® Light is

a scaled-down version of Precision’s Super Single® rig. The two Super Single® Light rigs in our fleet

exceeded operational expectations. Among their achievements: a Super Single® Light successfully

completed a shallow gas project in northeast British Columbia in record time and under budget; a Super

Single® Light also drilled horizontal heavy oil wells in east central Alberta with tremendous success.

Also in 2004, Canadian Contract Drilling:

n Drilled 1,953 wells or 9% of total industry well count, with Precision’s 11 coil tubing rigs, which represent less

than 2% of industry rig fleet.

n Retrofitted two light triple rigs from conventional mechanical to diesel-electric to support medium-depth and

deep natural gas drilling.

n Began development of a new, proprietary single rig to support a customer’s need to exploit coalbed methane gas

reserves. We expect to deploy this technologically advanced rig during the third quarter of 2005.

n Continued with a significant drilling rig upgrade program that expands our mud circulation, pipe handling, power

and move capabilities.

n Laid plans for 2005 to continue with similar reinvestment in our equipment to be complemented by higher

spending to build additional Super Single® Light rigs.



Contract Drilling’s well servicing business unit consolidated and strengthened its asset base in 2004

while maintaining the fleet count at 239. This unit, referred to as Precision Well Servicing, provides

customers a complete range of oil and gas well services including completions, workovers, abandonments,

well maintenance, high pressure and critical sour well work, re-entry preparation and re-entry drilling. To

improve efficiency, the division closed five stations, opened a new shop in Estevan, Saskatchewan and

moved into a new operating facility in Grande Prairie, Alberta. Precision Well Servicing continues with a

significant multi-year service rig upgrade program that reinforces and upgrades our core capabilities. In

many instances, these upgrades provide a better designed rig at a lower cost. As our Contract Drilling

customers move to spend more to exploit existing production, we are meeting the investment ‘ante’ by

introducing innovative, newer, more reliable well servicing equipment, manned by well-trained and

safety-conscious crews.

In 2004, a centralized personnel group was established in the Well Servicing division. This group

helps direct policy and management strategies, and supports field locations as we work to meet manpower

demands throughout the year. Experience tells us this strategy will be successful in narrowing the gap

between available manpower and demand.

The Live Well Service division had a record year in 2004 because of the strong natural gas sector. The

division provides snubbing services, most of which is hydraulic rig assist, for completions, workovers, and

underbalanced drilling operations. Live Well Service increased its snubbing units to 26 with the introduction

of its first semi-automated, standalone snubbing unit. This unit’s unique design is patent pending.

Columbia Oilfield Supply Ltd. is a general supply store that procures, packages and distributes large

volumes of consumable oilfield supplies to the contract drilling and well servicing industry. Over 90% of

its activity is in support of affiliated company operations. To that end, Columbia has served to become an

essential extension of the purchasing process for drilling and well servicing operations.

In the area of human resources, the Contract Drilling business units take an industry-leading approach

to the recruitment, orientation and training of their field personnel. The challenge lies in the retention of

these workers. Throughout the drilling industry, retention is difficult because work predictability is volatile

due to its seasonality and economic cycles. Our challenge to retain employees has become even more

pronounced as new service companies join the industry, and as customers recruit experienced personnel in

response to overall industry growth and increased drilling and equipment supply. We are responding to this

challenge by reinforcing a work culture that revolves around safe and environmentally-friendly operations

and teamwork. This has helped us retain skilled, safety conscious employees.

In an organization as large and

complex as ours, we recognize the

need to centralize information

to ensure all employees are able to

function effectively together.



Canadian Contract Drilling manages all of its activities and divisions through one management

group. In 2004, the business took further steps to streamline and control operations by the continued roll

out of an integrated Enterprise Resource Planning information system. This system works to standardize

underlying accounting, business processes and controls, as well as financial reporting to effect optimal

decision making. It also serves to meet growing compliance requirements in areas such as privacy

legislation and Sarbanes-Oxley internal control-based regulations.

International Contract Drilling

2004 highlights

Precision entered 2004 as a relatively small player internationally with 19 rigs around the world – 10 in

Mexico, 4 in Venezuela, 1 in Brazil, and 4 in the Middle East and Asia – and exited the year as a major

player with 48 international rigs currently deployed as follows: 10 in Mexico, 11 in Venezuela, 12 in Kuwait,

4 in Saudi Arabia, 4 in Egypt, 4 in Oman, 1 in the Persian Gulf and 2 in India.

In the second quarter of 2004, Precision acquired all of the worldwide land drilling assets of

GlobalSanteFe Corporation. Through the acquisition Precision added 31 excellent-quality primarily

heavy-duty land rigs and an extensive fleet of specialized rig transport equipment that supports land rig

operations in Kuwait and the Kuwaiti-Saudi Arabia Partitioned Neutral Zone. Precision also gained

approximately 1,300 experienced international staff of some 27 nationalities and expanded its

geographical base significantly in the Middle East, North Africa and South America. In the Middle East,

where operations had been conducted for almost 40 years, Precision has gained an established footprint

and deeper knowledge about the region.

This acquisition transformed Precision into the third largest provider of land rigs in the international

market and broadened the Corporation’s international product offering. As a result, Contract Drilling’s

operating days in the international market increased exponentially compared with 2003.

The timing of this acquisition was excellent. The demand for rigs internationally increased

throughout the remainder of 2004 as various customers ramped up drilling activity in step with rising

energy prices and most customers looked to expand or at least stabilize their production capabilities going

forward for the foreseeable future.

The process of merging assets and melding corporate cultures went very smoothly.

In response to the growth of the international rig fleet, Columbia Oilfield Supply, Inc. established a

presence in Houston, Texas. This location makes strategic sense in terms of accessibility for our customers

operating in remote locations, and will ease the procurement process for Precision rigs working outside

North America.

The international division took further steps to increase the efficiency of operations by structuring

along geographic lines with Eastern Hemisphere operations run out of Dubai and the Western

Hemisphere out of Calgary. This new hemispheric focus was well timed as it enabled the division to better

focus on the expected substantial increase in activity in the Middle East.



Eastern Hemisphere The Eastern Hemisphere, in particular the Middle East, is central to Precision’s

strategy to expand internationally. Precision currently operates with multiple rigs in Saudi Arabia, Kuwait,

Oman, Egypt and India.

In the Gulf States, particularly Saudi Arabia, increased upstream investment is driving demand for

a significant number of additional heavy rigs in the near future. Contracts for these rigs tend to be longer

term – three or more years at a time – so this upsurge in demand is not a short-term phenomenon.

Demand in Oman, Egypt and India was steady throughout 2004, with India expected to be another area

of potential expansion for Precision in the immediate future.

Western Hemisphere In the Western Hemisphere, Contract Drilling continues with 10 rigs in Mexico in the

strategically-important Burgos Basin, Mexico’s largest non-associated natural gas field. We anticipate

Burgos wells to be drilled deeper than they have been historically.

Precision currently has 11 rigs in Venezuela, eight of which were added through the acquisition. Six

of these 11 rigs were active during 2004 and as a result there are plans to redeploy some of the excess rigs

to the Middle East or other areas to meet demand.

2005 Contract Drilling Strategy

Contract Drilling will continue to build on its market-leading strengths during 2005.

In Canada and internationally, Contract Drilling will focus on reinforcing Precision’s “safety

culture” and ensuring best operating practices. It will build and leverage its experienced employee base and

diverse customer base and ensure maximum efficiency through further standardizing operating, safety

and accounting practices.

Precision has positioned itself to fully exploit the opportunities it sees arising in Canada and

internationally. In Canada, we do caution that the industry now has the equipment capacity to sustain an

annual industry completed well count above 20,000 in the WCSB. As we enter 2005, service companies

continue to add new equipment with little more than a best effort commitment from customers.

In the Eastern Hemisphere, we foresee substantial opportunity in the Middle East. Specifically, the

oil and gas industry is predicting a 40-50% increase in rig count in Saudi Arabia. Demand is expected to

be primarily for the same type of heavy-duty assets that Precision acquired during 2004. Kuwait is looking

to expand its oil exporting potential and is planning to develop a natural gas infrastructure for domestic

use. It is also anticipated that there will be an increased demand for heavy rigs in other Gulf States as part

of this development process. This cumulative demand for heavy rigs in the Middle East is expected to

reduce the availability of this type of rig to other markets. Consequently, and consistent with the principles

of supply and demand, revenues for these units on the international stage should increase. In the longer

term, India also offers potential for expansion, while we expect Oman and Egypt to be steady. We will also

look for opportunities in other countries in the region.

In the Western Hemisphere, we anticipate that Mexico will be steady and we have recently been

awarded a contract extension of our integrated services contract that will maintain utilization at

approximately 70% into 2006. We see potential for additional work with customers other than Pemex in

due course as anticipated new contract opportunities arise. We are also in a position to pursue new drilling

opportunities in Venezuela in 2005 should they arise.



Energy ServicesThe Precision Energy Services business

segment provides innovative oilfield technology

services to oil and gas exploration and production

customers around the world. These services allow

customers to drill faster, more efficiently and at

less cost while ensuring the well trajectory is on

target with optimal production potential.


energy services 27

Precision Energy Services is

structured across three focused

product lines: Wireline Services,

Drilling & Evaluation Services

and Production Services.

To more effectively build international awareness of our unique capabilities, Energy Services united its

activities under a single brand in 2004. This strategic initiative replaced diverse brands such as

Northland-Norward, Challenger, Plains, BecField, Reeves, and Computalog with a brand which

symbolizes our efficiency, reliability, and fit-for-purpose technology. The brand image unites activities

under shared objectives, enabling Energy Services to focus on total customer service while building

international awareness and nurturing a powerful culture.

Based on the strategy developed at year end 2003, Energy Services is focused on activities to build

significant critical mass and competitive advantage in strategic markets. As a result of the strategic plan,

Fleet Cementers, Polar Completions and United Diamond business lines were divested and enhanced focus

was placed on Wireline, Drilling & Evaluation, and Production Services product lines. The acquisition and

integration of Reeves Oilfield Services was another key milestone in executing the strategic plan.

The Compact™ technology and business model developed by Reeves fits perfectly with our strategy to

provide formation evaluation independent of conveyance. Our development costs have been estimated to be

less and our development program quicker through the application of an innovative engineering approach.

In addition, our total system approach has also shown significant advantages for minimizing repair and

maintenance costs. The unique capability to cost effectively log through drill pipe and obtain essential

formation evaluation information in difficult hole conditions and complex well trajectories is a service that

is enjoying tremendous growth. This service enables Energy Services to capitalize on the trend of an

increasing quantity of wells being drilled directionally, horizontally, or in difficult drilling environments. The

Revolution® rotary steerable technology commercialized by Energy Services during 2004 provides another

avenue for the segment to be a leading beneficiary of the market trend that is expected to accelerate, as oil

and gas customers continue to seek ways to develop production assets more efficiently.

For the development of its Revolution® rotary steerable system, Precision adopted the philosophy of

developing the most difficult part first. By designing and commercializing the smaller diameter 4-3/4 inch

system, we have paved the way to develop larger systems more rapidly and with excellent reliability.



Precision’s philosophy is about setting aggressive goals and then working intelligently to achieve

those goals using the most cost effective and efficient means. One example is our Wolf Pack computer

cluster which ranks in the top 500 supercomputer clusters in the world. The Wolf Pack is configured from

commodity PC parts and the open source operating system, Linux, to keep the price 70% lower than

commercial products, and to make rapid, regular updates of the hardware and software inexpensive and

simple. During the development of the LWD nuclear tools we were able to model over 100 possible

configurations and optimize to the ideal design within four months – this process could have taken

approximately four years using traditional methodologies. The response of the first prototype tool tested

within 1% of computer generated model design. The Wolf Pack system also enabled rapid post design tool

response characterization to be analyzed and so further accelerated the product development process.

Over 200,000 different conditions were characterized, a feat which would have be virtually impossible to

accomplish using experimental measurements.

As a result of innovative thinking, Precision has developed an LWD system with some of the fastest

logging speeds, highest temperature, and highest pressure ratings in the world. These tools are also among

the most modern and the most reliable systems available. This combination enables Precision to meet

customers’ needs when seeking oil and gas in the ever increasing hostile environments such as the deep

offshore Gulf of Mexico. Precision is committed to supporting its energy sector customers in accessing and

developing oil and gas fields efficiently and effectively. With most of the “easy oil” already found and

mostly difficult-to-access reserves remaining, our customers’ production challenges call for new

exploitation models and customized solutions. The LWD system development is an example of how

Precision is stepping up to the challenge of meeting our customers’ most demanding needs.

Precision Energy Services offers a

streamlined, integrated approach;

providing customers with “best-

technology-for-the-situation” solutions

with a breadth of capability, ranging from

discrete services to fully integrated well

construction project management.


energy services 29

Precision Energy Services is customer driven rather than engineering driven, partnering with

customers to provide superior fit for purpose solutions that meet their bottom line objectives.

An excellent example of combining unique capabilities and technologies to deliver valuable

customer solutions involves the combination of our world class electromagnetic MWD telemetry with our

leading controlled and managed pressure drilling systems. We then provide additional value through

innovative geoscience data integration of surface and downhole information. This exclusive capability has

been leveraged by customers in the North Sea and Oman to achieve well productivity improvements of

greater than 200%, as well as achieving significant increases to drilling efficiency.

Our oil and gas customers seek to achieve the greatest production for each dollar spent on a

development project. Tremendous value can be achieved by the effective execution of land development

drilling campaigns. Precision is uniquely positioned to capitalize on the emerging trend of integrated well

construction projects because over 50% of the well construction costs are associated with the drilling rig

itself. Precision has one of the most efficient and advanced fleet of fit for purpose rigs and service offerings

geared towards maximizing efficiency for our customers.

Precision Energy Services has local infrastructure and personnel in each of the regions it operates

in, with the most recent facility opened in Aberdeen, Scotland in January 2005 to support customers

drilling in the North Sea. As Energy Services continues to gain market share, critical mass, and increased

utilization of assets in strategic geographic areas, margins are expected to continue to expand.

Wireline Services

2004 highlights

Wireline Services provides open and cased hole wireline logging and slickline services through its global

network of technical and service specialists.

Open hole wireline logging services include resistivity, nuclear, acoustic, borehole geometry,

magnetic resonance, formation imaging, formation pressures and sampling, data delivery and advanced

interpretation services. Cased hole wireline logging services include production logging, through-casing

and through-tubing reservoir evaluation services, casing/tubing inspection, propellant stimulation,

perforating, pipe recovery, cement evaluation, and tubing-conveyed perforating.

In May 2004, Precision acquired UK-based Reeves Oilfield Services Ltd., a provider of unique open

hole technology to the oil and gas industry with established operations in the U.S., Canada, Europe, the

Middle East, Africa and Australia. The Reeves operation has been fully integrated into Precision and we are

now capitalizing on the strategic strengths of both companies – Reeves’ unique technologies and

entrepreneurial culture, and Precision’s broad service offerings with established international customer

relationships and sales and marketing infrastructure. This has provided both a catalyst for expansion and

extended market access, focused on delivering fit for purpose services to maturing oilfields across the globe.

Wireline Services has achieved a dominant market position in Canada and is briskly growing in the

United States. Precision’s premier offering is a highly reliable and cost effective formation evaluation open

hole logging system known as the Compact™ suite of tools. Compact™ tools can be conveyed on wireline

or using an array of conveyance alternatives such as drill pipe, tractors or coil tubing. Precision customers

throughout the world are enthusiastically embracing this efficiency-based technology. The Compact™

tool design – smaller, slimmer and easier to handle – enables high quality logging data to be acquired more

efficiently than current competitors’ offerings. Post-acquisition, Reeves has performed beyond Precision’s

original expectations, in particular in the North American markets. The technology is also rapidly gaining

customer acceptance in Latin America and the Middle East.



With the branding of the Energy Services

business segment, Wireline Services

made organizational changes during 2004,

balancing operational excellence with a

customer-oriented focus.


2004 highlights

Drilling & Evaluation Services encompasses specialized drilling services including measurement-while-

drilling (MWD), logging-while-drilling (LWD), directional drilling and rotary steerable services. MWD

and LWD measure, respectively, wellbore properties and formation properties operating in real-time while

the well is being drilled. Directional drilling uses equipment and engineering to intentionally change the

angle of a wellbore so that drilling efficiency can be enhanced and formations or obstructions can be

circumvented in order to reach the pay zone. Rotary steerable tools allow the wellbore direction to be

controlled and changed while drilling with continuous rotation of the drill string from the surface

enabling longer lateral sections and increased drilling performance.

In 2004, Drilling & Evaluation Services

moved aggressively on focused global

expansion as part of an overall strategy to

achieve controlled, sustainable growth.

Our market-leading LWD, MWD and rotary steerable tools all passed rigorous technical

qualifications and trials with international customers in 2004. All tools achieved top-tier industry

standards in both reliability and performance. Drilling & Evaluation Services made strong inroads in

securing contracts with large international and national oil and gas companies in the U.S., Mexico,

Indonesia, India, the Middle East, Algeria, Libya, the Ukraine and the North Sea.


energy services 31

During 2004, Drilling & Evaluation Services completed the design and testing of its Revolution®

rotary steerable system for a variety of tool sizes – 4-3/4 inch, 6-3/4 inch and 8-1/4 inch. In addition, the

4-3/4 inch and 6-3/4 inch completed extensive field trials during 2004 and have been fully commercialized,

while the 8-1/4 inch is on target to be commercialized in the first half of 2005. The Revolution® system is

a slim, automated downhole drilling assembly that enables precise wellbore steering while maximizing rate

of penetration. The system has gained strong acceptance with new customers in Mexico, the North Sea,

North Africa and the Gulf of Mexico. In the area of MWD, the Precision EMpulse™ System continued to

gain acceptance in the U.S., the Middle East and Europe. EMpulse™ is an electromagnetic downhole data

communications system that provides drilling data in environments where traditional signal transmission

has not been possible. EMpulse™ is an enabling technology used in MWD systems to deliver performance

results in challenging environments. This technology allows us the option of offering electromagnetic or

mud pulse transmission with the same set of tools, in any global location.

Precision Energy Services has also gained industry recognition for its hostile environment

capabilities in the U.S. and North Sea in 2004, operating in high temperature (+150° C) and high pressure

(+20,000 psi) wellbore conditions. For example, in Texas, Precision’s Hostile Environment Logging

(HEL™) MWD system and PrecisionLWD™ triple combo system operated continuously at 375°F

(191° C) bottomhole temperatures. The performance of our tools in this demanding downhole condition

marks a substantial step forward in the advancement of hostile environment drilling. It is precisely these

advances in engineering that have the potential to make previously uneconomic development plans

potentially viable.

Production Services

2004 highlights

Production Services provides a comprehensive suite of wellsite services relating to the production,

management and delivery of hydrocarbons. These services support customers in their continued drive to

improve productivity – from accelerated production of hydrocarbons to improved drilling performance

and reduced drilling and completion costs. Core services are Controlled Pressure Drilling® (which

includes underbalanced drilling), well testing, well clean-up and early production systems.

In 2004, Production Services continued its geographic expansion of core services with the provision

of Controlled Pressure Drilling® services to the Middle East and offshore India, early production facilities

in the Middle East and significant growth in its well testing and well clean-up services in the U.S. Rocky

Mountain region. Production Services deployed Canadian assets into the U.S. gas market, providing

higher asset utilization than the seasonal Canadian market alone can provide. This initiative proved to be

a natural extension of Production Services’ original core service offering and its pre-eminent experience

in gas field exploitation. In Mexico, Production Services continued its support of Precision’s integrated

services contract in the Burgos Basin, so anchoring its Latin America business, in Mexico and Venezuela

for upcoming opportunities in 2005.



Production Services successfully re-tendered for a long-term contract with a large international oil

company for their underbalanced drilling operations in the southern North Sea, whilst extending the

services being offered. This new two-year contract follows five years of operation for this major customer

without a lost-time incident. Production Services’ UK operation also continues to support activities in

Eastern Europe and North Africa.

2005 Energy Services Strategy

In early 2005, the Energy Services segment established its strategic plan for the coming year. Central to this

plan was our vision to be the service provider of choice in the development and exploitation of mature oil

and gas assets.

From the Energy Services vision, a number of strategic initiatives were developed and committed to:

n Maintain a safe and healthy work environment and to roll out Target Zero™ on a global basis.

n Continue to attract a net inflow of talent. This will be achieved by remaining focused on training, developing and

motivating our goal-oriented, team centred workforce.

n Continue our commitment to innovation in respect of technology and service delivery. We will work continuously

to improve our product offerings.

n Focus internationally on achieving critical mass in high volume and return justified markets. Controlled expansion

will only be targeted on specifically identified areas with long-term potential.

n Create the most efficient service delivery model offering our customers the most reliable service in this industry.

This is fundamental to continuing sustainable profitable growth.

n Take advantage of the emerging trend of integrated well construction development projects. We will utilize our

operational expertise and project management capabilities to create significant value where this value can be

shared between our customers and Precision.

n Continue to enhance and streamline management systems and business processes to enable management to

make more informed and timely decisions to most effectively improve operational performance.

n Build the brand awareness of Energy Services in the eyes of our customers and our people.

On a more detailed basis the Product Lines have developed some specific short term deliverables.

Wireline Services will continue to focus on leveraging on the Compact™ Wireline technology by

extending the delivery of tools and conveyance systems across the Precision organization and to customers

throughout the world. Wireline Services is particularly well positioned for additional growth in North

America and will target further expansion in Latin America and the Middle East. The mobility of our

business will mean we will be ready to seize opportunities in other markets when they arise. In 2005,

Wireline Services will pursue the aggressive implementation of a new through-casing and through-tubing

evaluation platform. Cross-product line opportunities will be actively pursued to optimize service delivery

for all our customers.


energy services 33

Drilling & Evaluation Services will continue to target opportunities to develop business and

promote its performance-driven tools and services in countries and regions where the organization is

established. In 2004, we have seen considerable growth in our established offerings and have completed

extensive technical trials for our new innovations in our emerging markets. By the end of 2005, Drilling &

Evaluation Services will have built a solid foundation for its international business.

Production Services will move aggressively to market, sell and demonstrate on a global basis its technical

prowess in the fields of performance drilling, well testing, well clean-up, and early production systems.

Our electromagnetic MWD extended range system, as well as our electromagnetic MWD coated

casing transmission options, have become solutions for operators carrying out underbalanced drilling

operations in more challenging conditions and to deeper depths. In 2005, we will continue to enhance

capabilities to offer our customers superior underbalanced drilling packages.

Precision Energy Services will work

with Precision’s other business segments

to ensure every opportunity to cross-market

our services is maximized.

There will be new products that we anticipate launching in 2005. Examples include Compact™

formation imaging and Compact™ dipole sonic. Consistent with our philosophy to leverage capabilities

across product lines, the Compact™ formation tester will be coupled with our electromagnetic telemetry

technology to create a wireless formation test service, enabling efficient real time pressures to be recorded

in challenging hole conditions. During 2005, Wireline Services will also launch a new generation casing

inspection service, ultrasonic cement imager, high speed cased hole telemetry system, and open hole array

induction service. The Revolution® rotary steerable system will be enhanced to facilitate bi-directional

communication, build upon its geosteering and performance drilling capabilities, and expand the tool size

range further. The Revolution® rotary steerable system has seen wide customer acceptance in 2004, with

the commercialization of tools for larger hole sizes which are expected to be complete by Q2 2005.

In total, these new initiatives and product offering will serve to enhance Energy Services’ ability to

deliver fit for purpose solutions to customers needs around the world.


Rental and ProductionPrecision’s Rental and Production business

segment provides essential value added services

to the energy sector and other industrial

sectors in both Canada and the U.S.


rental and production 35

The two major product lines within the

Rental and Production segment are

Precision Rentals and CEDA.

Rental

Precision Rentals Ltd. is an oilfield rental company serving the equipment needs of producers throughout

western Canada. Its operations are well positioned with a comprehensive network of field offices and

equipment stocking points, making Rentals one of the largest providers.

Our equipment is divided into three product categories:

n Surface drilling, completions and production equipment

n Specialty drill string tubulars and well control equipment

n Field and wellsite accommodations

In response to changing market dynamics over the past three years, Precision Rentals has undergone

considerable change. In 2002, we shut down the in-house manufacturing facility for wellsite

accommodations and in 2003, three single product divisions formerly known as Ducharme Rentals, Big D

Rentals and Smoky Oilfield Rentals were combined under the name Precision Rentals. Throughout 2004,

a focus of ours has been to document and modify business processes to facilitate our new multi-product

delivery strategy. For 2005, these efforts will result in the implementation of a new enterprise wide

accounting software. We are working to standardize the way we do business from pricing terms, to

equipment dispatch and delivery to transactional documentation in support of instructions for use and

certification.

Precision Rentals continues to reinvest in new equipment to keep its fleet in strong condition and of

a mix that meets demand. The rate of reinvestment has averaged almost 50% of after tax cash flow margins

over the past four years, without any expansion by way of acquisition.

2004 highlights

Precision Rentals maintained strong pricing throughout the year. As part of the Rental restructuring,

which was initiated in the third quarter of 2003, a Technical Support Centre was opened in 2004. By

centralizing data and expertise into this Centre, which is located in Nisku, Alberta, Precision Rentals is

better able to respond quickly and efficiently to our customers’ growing needs.

In Grande Prairie, Alberta, Precision Rentals has now completed a new 25,000 square foot

Operations Centre, which will enable us to execute our strategy and provide customers with a gateway for

their rental needs, particularly those in Canada’s northern markets.



Production

CEDA is a leader in industrial, catalyst and mechanical services, offering customers nearly 40 distinct

product and service lines.

It is one of North America’s largest providers of specialized industrial maintenance and “turn-

around” services to oil refineries, petrochemical plants, nuclear power facilities, and pulp and paper

operations. A major focus for CEDA’s industrial maintenance operations is the oil sands region in

northern Alberta, which is one of the world’s largest energy resource basins, and a key strategic source of

North American energy supply.

CEDA offers a wide range of catalyst handling services to the oil refining and petrochemical

manufacturing sector, and is the leading catalyst handler in North America.

It also provides a full range of cost effective mechanical maintenance and construction services to

the energy, refinery, petrochemical, fertilizer and pulp and paper industries throughout Canada.

2004 highlights

CEDA’s industrial services operations in Alberta’s oil sands region continued to grow strongly in 2004 as

a result of the ongoing expansion of existing oil sands facilities and the introduction of new oil sands

players in the market. Also as a result of the increased oil sands capacity, CEDA expanded its refineries’

customer base in the Edmonton area. CEDA also saw growth in the U.S. market as a result of the catalyst

specialty tubular market and the focus on services for refinery and petrochemical turn-

around/shutdowns. The continued advances in robotics used for inert entry, as well as the introduction of

advanced high pressure cleaning tools, contributed to a safer work environment for CEDA’s and

customers’ employees on plant sites.

2005 Rental and Production Strategy

Precision Rentals will continue implementing its three-year plan, which began in 2003, to streamline

internal operations and become a leader in the industry in terms of service and equipment quality. This

will be achieved through targeted expansion and integration of all rental equipment product lines. With

an industry market share in the 10-15% range, Precision Rentals has room to grow as customer

opportunities arise.

CEDA’s growth strategy is based on providing the highest quality, most efficient round-the-clock

service to our customers, and on product and service innovation. We will continue with this strategy in

2005 to support our expanding customer base, as well as to support growth in our customers’ business.

Specifically, we are well positioned to grow our customer base in the Canadian oil sands sector and to

continue growth in the U.S. market where requirements for low sulphur fuels will result in more frequent

catalyst replacement for most of the refinery capacity.




LEADERSHIP IN SAFETY

Precision Drilling Corporation’s team shares a clear vision of what we will achieve through our

comprehensive health, safety and environment (HSE) program.

It is an ambitious vision – a future where injuries to people or damage to the natural environment,

equipment or property no longer occur.

It is an all-encompassing vision – a future free from losses that can occur from injuries, negative

health effects, environmental or property damage, product defects, service failure or damage to Precision’s

image or reputation.

The vision is continuously reinforced through our Target Zero™ vision. Introduced in 2002, Target

Zero™ is creating a “safety culture” throughout the Corporation.

Target Zero™ is designed to provide our 12,000 employees with the information, training,

leadership and self-management skills they need to achieve an incident-free working environment.

Target Zero™ is both a vision and an ongoing, long-term program of continuous improvement and

as such, the program provided the focal point for all of Precision’s HSE activities in 2004.

Focus on Training

Through our training program, Precision is building our employees’ awareness about health, safety and

the environment, and thereby building a Target Zero™ culture.

Our training courses are designed to help employees learn, grow and succeed in their jobs, as well as

carry out their work safely and conscientiously.

In order to reach as many people as possible, courses are held both at our training centres and in the

field. Courses cover a wide range of topics including observation and communication, driver training,

hazard identification and control, and environmental awareness.

Precision’s team of nearly 90 HSE professionals worldwide are continuously improving and

expanding its training programs to ensure they meet the needs of our constantly growing and evolving

Corporation and marketplace.


leadership in safety 39

new training facility

In 2004, Precision opened a new training facility in Fort Worth, Texas, to serve primarily our Energy

Services business unit. The facility is being used to train employees in HSE awareness, as well as job

specific skills such as employee orientation, equipment operation, defensive driving and the handling

and security of hazardous materials.

Precision’s other major training facility is located in Nisku, Alberta.

observation and communication workshops

A critical component of the Target Zero™ initiative is Precision’s unique Observation and

Communication workshop.

Ninety-eight percent of all recordable injury incidents directly relate to the behavior of people, so

the course is designed to prevent incidents by improving employees’ observation and communication

skills regarding safety at the job site.

The workshop teaches employees how to observe their own safety behavior as well as that of their

co-workers. Employees also learn how to communicate observed safety issues through positive, open and

respectful dialogue with fellow employees and through formal reports. These reports allow Precision’s

HSE professionals to pinpoint and address safety weak points. The ultimate goal of Observation and

Communication is to provide effective tools for recognizing and effectively responding to hazards.

Precision initially introduced Observation

and Communication workshops to our

Contract Drilling employees in Canada.

Today, the workshops are segment-wide and

will be jointly offered with Energy Services

employees in 2005.

In both the domestic and international Contract Drilling areas, we believe these workshops have proven

themselves to be very effective in reducing injuries.

Our Energy Services segment ran its first Observation and Communication workshop for senior

managers in late 2004, and will hold more during 2005 to involve approximately 30% of its employees –

about 800 people, primarily field managers and supervisors.



driver training and awareness

Collectively, Precision’s employees drive literally tens of millions of business kilometres each year. On this

basis, therefore, the Corporation has made driving safety training and awareness a Target Zero™ priority. We

run a unique driver education and awareness program with the Royal Canadian Mounted Police (RCMP).

Also in collaboration with the RCMP, we produced a video on seat belt safety called “Drive to Survive”. We

have distributed the video to the homes of some 6,900 Precision employees in Canada and the U.S.

To affirm its leadership in the field of driving safety, in 2004, Precision’s Canadian Contract Drilling

business segment participated as lead sponsor in an industry conference called “Making In-Roads:

Partnership, Knowledge and Tools for Traffic Safety”. The three-day conference, which was organized by the

Petroleum Safety Council and the Alberta Centre for Injury Control and Research, attracted 300 delegates

from industry and the health and enforcement sectors to discuss traffic safety issues. In 2004, the Energy

Services business segment focused on developing its driving policy and compliance program to address

such issues as speed, acceleration, deceleration and maintenance of company vehicles. Energy Services

employees alone clocked more than 70 million kilometres in work-related road travel in 2004.

Focus on Safety

Total Recordable Injury Frequency (TRIF) and Lost Time Injury Frequency (LTIF) are industry standard

measures of safety performance.

TRIF measures the number of work related injuries that require a certain level of medical treatment

per 200,000 hours worked, including, but not limited to, lost time injuries. Since 2001, Precision’s

company-wide TRIF has fallen 41%. The Corporation’s international contract drilling business which is

responsible for drilling activities in all regions outside of Canada, led this decline in 2004 by posting a

TRIF of 1.15. Within Canadian Contract Drilling, 144 service rigs, 105 drilling rigs, 15 snubbing units, 78

camps and 12 shop facilities operated recordable free during 2004. These results prove that achieving

“target zero”, or no injuries, is possible and demonstrate Precision’s company-wide message – that safety

is our primary guiding principle – is working.

LTIF measures the number of work-related injuries that result in workers missing their next regularly

scheduled work shifts per 200,000 hours worked. Since 2001, Precision’s company-wide LTIF has fallen

24%. Precision Drilling International’s LTIF in 2004 was 0.11 – this figure along with its TRIF is industry-

leading and serves as an impressive example to the entire Corporation, our customers and our peers that

the target can be reached.

While we have made improvements, we will not rest until we achieve Target Zero™. In the words of

Hank Swartout, “We cannot and will not accept our people being hurt.”


leadership in safety 41

Management Commitment

During 2004 in Canada, Precision held “Safety Stand-Down” sessions within all business units during

which senior managers visited field locations and met with front line workers to discuss safety issues.

“Safety Stand-Down Week” is an industry initiative formally established by the Canadian Petroleum

Safety Council, but Precision had been conducting these sessions for several years before they became

an industry standard. Over this time, Precision’s experience with “Safety Stand-Down” sessions has been

so positive that the Corporation is now holding them several times a year for managers and employees

of the Canadian Contract Drilling and Energy Services business segments.

Precision has learned that there

is great value to be derived

from senior management talking,

listening and responding to field

personnel about safety and our

vision, Target Zero™.

In December 2003, Energy Services established a Quality, Health, Safety and Environment Executive

Committee, made up of the most senior managers in the segment, to regularly review and discuss its

QHSE performance and issues. QHSE introduced a newsletter called “Achieve” to communicate and

celebrate Energy Services’ QHSE achievements.

Quality

In 2004, the Energy Services business segment had six of its sites audited by external quality

management system auditors to verify that active Quality Management Systems were in place and

operating effectively. These six audits were successful and in all cases resulted in the facility being

registered as ISO 9001-2000 operations. The facilities include one each in Canada, the UK, Abu Dhabi,

Oman and two in Germany.



Awards and Recognition

In 2004, Precision received several industry awards for its safety practices during the previous year.

Precision greatly values this third-party recognition, which reflects positively on the efforts of all Precision

employees to achieve Target Zero™.

Some of our HSE accomplishments include:

n For the second consecutive year, our Precision Well Servicing operating unit received from the Canadian Association

of Oil Well Drilling Contractors the 2003 “President’s Safety Shield” award for companies with 275,000 man

hours or more.

n Precision’s Rig 151 in Oman was awarded Shell’s Worldwide Land Rig of the Year. This award is based on superior

training and handling of a rig. Subsequently, this rig was also recognized for its 11 years without a Lost Time

Incident as of December 31, 2004.

n For the third straight year, Precision’s Energy Services business segment won the “Carrier Safety Award” from

the Petroleum Services Association of Canada (PSAC) for commercial vehicles in the “over 10 million kilometres

driven” category. An Energy Services employee also received PSAC’s “Safe Driving Award” for 2003.

n In the UK, Energy Services received the 2004 Gold Award from the Royal Society for the Prevention of Accidents.

This marked the fourth consecutive year Energy Services has won the award, which recognizes “the achievement

of a very high standard of health and safety”. They also received a safety award from the British Safety Council.

n Precision’s Columbia Oilfield Supply Ltd. and REPPSCO Services Ltd. received the 2003 Best Safety Performance

Award from the Workplace Health and Safety section of the Alberta government’s Human Resources and

Employment department.

n Our CEDA operating unit continues to be recognized by its customers and industry associations for its high safety

standards and performance. In 2004, the CEDA team received the Syncrude President’s Award for “Most Innovative

Environmental, Health and Safety Idea Implemented”. This award was based on the introduction of competency-

based training, safety audits and the development of the SuperLance™ tool used to remove run limiting fouling in

Syncrude’s fluid cokers.

2005 Safety Strategy

Precision will continue to focus on employee training and engagement, and the implementation of

advanced hazard management tools in pursuit of its Target Zero™ vision.

We will continue to take the necessary steps to ensure that our HSE initiatives cascade through the

organization at all levels through all business segments and operating units. We will develop our

management systems to ensure a consistent and complementary approach to HSE worldwide.

We will also tap into the HSE knowledge, expertise and success of the people who have joined

Precision through the acquisition of the international land drilling rigs. The people associated with these

rigs can be viewed as industry leaders in HSE and can only help us strengthen our HSE culture.


community relations 43

COMMUNITY RELATIONS

Precision’s Community Relations program plays an important role as we strive to be a good corporate

citizen by strengthening our presence in the communities in which we operate.

In 2004, our Corporate Donations program fulfilled close to 60 percent of requests received from our

employees, customers, the communities in which we do business, and registered charitable organizations.

These requests fall into 11 categories, including rural and urban community; international aid; women’s

and seniors’ groups; youth; aboriginal; medical and disabilities; the arts; the homeless; educational; the

environment and political. In order to provide ongoing support, a number of the donations are made over a three

to five-year period, including those to the Alberta Children’s Hospital Foundation, Shock Trauma Air Rescue

Society (STARS), shelters for abused women and children, medical research and education. In addition, Precision

contributes annually to the United Way campaigns in Calgary, Edmonton, Red Deer and Grande Prairie,Alberta.

Precision is proud to sponsor a number of events throughout the year that provide proceeds to

charitable organizations, such as the Aga Khan Foundation of Canada’s World Partnership Walk, and the

Tiger Classic Golf Tournament in support of Ronald McDonald House. As well, the Corporation sponsors

Alberta Theatre Projects PlayRite’s Festival, special exhibits at the Glenbow Museum in Calgary, Alberta,

the Alberta Science and Technology (ASTech) Awards Gala, the Canadian Petroleum Hall of Fame Dinner,

and various events to raise funds for environmental conservation groups.

While Precision provides corporate support, our employees and their families are equally

committed to the communities in which they live and work. This commitment includes volunteering for

local charities, participating in events supporting the Kids’ Cancer Care Foundation, Alzheimer’s disease,

breast cancer, diabetes and other research, the United Way’s Days of Caring program, local arts programs,

and coaching sports teams.

Internationally, in response to the devastating tsunami which struck the Indian Ocean on

December 26, 2004, an area in which Precision has operations and staff, we invited our employees

worldwide to contribute to the ongoing relief efforts in South Asia through the agency of their choice, and

matched those donations on a two-for-one basis. In Cuidad del Carmen, Mexico, Precision assisted with

logistical coordination for the “Gift of Love” program, a Calgary-based initiative which saw local women

and children and their mothers travel to Mexico to distribute 2,000 gift bags, sports equipment and school

supplies to five schools and one orphanage.

Precision also recognizes the value of a post-secondary education. The Corporation supports

children of employees through its Employees’ Dependent Scholarship Program. Scholarships are awarded

to applicants pursuing studies at university, college, technical or arts facilities, who demonstrate superior

academic performance, work experience and community leadership. Precision also contributes to

scholarships at the Southern Alberta Institute of Technology in Calgary, Alberta and Grant McEwan

Community College in Edmonton, Alberta.


From top left to right:

W.C. (MICKEY) DUNN

ROBERT J. S. GIBSON

PATRICK M. MURRAY

FREDERICK W. PHEASEY

ROBERT L. PHILLIPS

HANK B. SWARTOUT

H. GARTH WIGGINS


THE BOARD OF DIRECTORS

W.C. (MICKEY) DUNN (2)(3)

Age: 51

Edmonton, Alberta

Mr. Dunn has been a member of Precision’s Board of

Directors since September 1992. He has held the position of

Chairman of True Energy Ltd., a publicly traded oil and gas

exploration company since January 2000. He is a founding

shareholder and director of Rentcash Inc., and a director of

Meridian Energy Inc. Previously he was President and a

director of Cardium Service and Supply Limited.

ROBERT J. S. GIBSON (1)(3)

Age: 58

Calgary, Alberta

Mr. Gibson has been President of a private investment firm,

Stuart & Company Limited, since 1973 and is also

Managing Director of Alsten Holdings Ltd. He has been a

Director of Precision since June 1996.

PATRICK M. MURRAY (1)

Age: 62

Dallas, Texas

Mr. Murray is Chairman of the Board and Chief Executive

Officer of Dresser Inc., and has been a Director of Precision

since July 2002. A member of the American Petroleum

Institute and the Society of Petroleum Engineers, Mr.

Murray is also a board member of the World Affairs Council

of Greater Dallas, the Valve Manufacturers Association, the

Petroleum Equipment Suppliers Association and Houston-

based Harvest Natural Resources Inc.

FREDERICK W. PHEASEY (2)(3)

Age: 62

Edmonton, Alberta

Mr. Pheasey is currently a director of National Oilwell Inc.

Previously he was the founder and Board Chairman of

Dreco Energy Services, which was acquired by National

Oilwell in 1997. Mr. Pheasey has been a Director of

Precision since July 2002.

ROBERT L. PHILLIPS (2)(3)

Age: 54

Vancouver, British Columbia

Mr. Phillips joined Precision’s Board of Directors in May

2004. Most recently, he was President and Chief Executive

Officer of the BCR Group of Companies from 2001 to 2004.

Previously, he was Executive Vice President of MacMillan

Bloedel Limited, President and Chief Executive Officer of

PTI Group Inc., and President and Chief Executive Officer

of Dreco Energy Services Ltd. Mr. Phillips also serves on the

Boards of several major Canadian corporations including

Epcor Utilities Inc., Canadian Western Bank and

MacDonald, Dettwiler and Associates Ltd.

HANK B. SWARTOUT

Age: 53

Calgary, Alberta

Mr. Swartout has been Chairman, President and Chief

Executive Officer of Precision since 1985. Previously he held

positions as Manager of Bawden Western Oceanic Offshore,

Vice President of Rig Design and Construction for Dreco,

and Manager of Construction for Nabors Drilling Canada.

H. GARTH WIGGINS (1)

Age: 56

Calgary, Alberta

Mr. Wiggins has been the President of a private investment

firm, Kamloops Money Management, since 1993. He is also

currently a Principal of Kenway, Mack, Slusarchuk, Stewart

Chartered Accountants. Previously he was Vice President

Finance and Chief Financial Officer of Tri Link Resources

Ltd. and a partner of Farvolden, Wiggins, Balderston

Chartered Accountants. He has been a Director of Precision

since September 1997.

(1) Audit Committee member

(2) Compensation Committee member

(3) Corporate Governance and Nominating Committee member



CORPORATE GOVERNANCE

Precision’s Board of Directors is comprised of experienced, proven leaders representing a diverse group of

professions and industries in Canada and the United States. Together, the Directors work to help Precision

realize its full potential by sharing their creative vision, initiative and sense of how outside events and

developments can affect Precision’s future. They bring sound judgment, integrity and independence of

thought to the task and are encouraged to speak their minds, while respecting others, so that different

viewpoints can flourish in the process of developing a sensible consensus.

The Board has formally adopted and published on Precision’s website a set of Corporate Governance

Guidelines which affirms Precision’s commitment to maintaining a high standard of corporate governance.

Our Code of Business Conduct and Ethics (the Code), adopted by the Board, expresses fundamental

principles that guide the Board in its deliberations and shape Precision’s activities worldwide. The Code

applies to the members of the Board, the Chief Executive Officer (CEO), the Chief Financial Officer and

all employees throughout the organization. It incorporates our guiding principles: upholding the law,

honouring trust, fairness, objectivity, confidentiality, integrity and corporate and individual responsibility.

It creates a frame of reference for dealing with sensitive and complex issues and provides for accountability

if standards of conduct are not upheld. In addition, the CEO and the principal financial officers of

Precision have signed a Code of Ethics. The text of both of these documents can be found in the Corporate

Governance section of Precision’s website at www.precisiondrilling.com.

Precision’s common shares are listed on the Toronto (TSX) and New York (NYSE) stock exchanges.

Under the rules of the TSX, Precision is required to disclose information relating to its system for

corporate governance. Precision’s disclosure addressing each of the TSX’s guidelines is set out in Schedule

‘A’ to the Management Information Circular issued in connection with the 2005 Annual and Special

Meeting of the Shareholders, and can also be found in the Corporate Governance section of Precision’s

website at www.precisiondrilling.com.

Applicable NYSE rules with respect to disclosure of corporate governance practices do not require

a foreign issuer to comply with its corporate governance practices, except for certain audit committee and

other specified requirements which includes a foreign issuer, such as Precision, to disclose the significant

ways in which Precision’s corporate governance practices differ from those required of domestic

companies under NYSE listing standards. Precision’s governance practices comply with the NYSE rules in

almost all significant respects. The disclosure of those differences can be found in the Corporate

Governance section of Precision’s website at www.precisiondrilling.com.

Precision’s Board regularly reviews its corporate governance practices in light of developing

requirements in this field. As new provisions come into effect, the Board will reassess its corporate

governance practices and implement changes where appropriate.

Independence of the Board

A majority of the Board of Precision must be resident Canadians and must qualify as independent and

unrelated directors in accordance with the applicable rules of the TSX, the NYSE and Canadian and U.S.

securities laws. To assist it in making determinations as to the independence of members of the Board of

Directors and its committees, the Board has adopted categorical standards of independence as permitted

by the NYSE. A Director who qualifies as independent under this policy is both “unrelated” to Precision

within the meaning of the TSX guidelines and “independent” under the NYSE rules. Six of the seven

members of Precision’s Board are independent and unrelated to Precision. The only related Director is


corporate governance 47

Hank B. Swartout, Chairman of the Board, President and Chief Executive Officer of Precision. The Board

has concluded that Mr. Swartout’s dual role does not impair the Board’s ability to function independently

of management. Mr. Swartout’s extensive knowledge of Precision’s business is beneficial to other members

of the Board. To further reinforce and maintain independence, the Board appoints a Lead Director, each

quarter, from the independent Directors at each regularly held in-camera session. The Lead Director is

responsible for ensuring that meeting agendas include the areas of interest of the Board and developing

the agenda for, and presiding over in-camera sessions and acting as principal liaison between the non-

management Directors and the CEO on matters dealt with during the in-camera sessions. In addition, the

Board has adopted the more stringent definition of independence for members of the Board committees.

This stringent definition of independence corresponds to the audit committee member independence

qualification within the meaning of the Sarbanes-Oxley Act of 2002 (SOX). To meet the SOX audit

committee qualification, a director must not, directly or indirectly, accept any consulting, advisory or

other compensatory fee from the Corporation nor be an affiliated person of the Corporation or any

subsidiary other than in such director’s capacity as a member of the board or any committee.

Responsibilities of the Board

Precision’s Board members are stewards of the organization. The Board of Precision oversees the management

of the business affairs of Precision, discharging its responsibilities either directly, through Board committees

or through management. The delegations of authority conform to statutory limitations specifying

responsibility of the Board that cannot be delegated to management. Any responsibilities not delegated to

management remain with the Board and its committees. The Board encourages Precision’s management, led

by the President and CEO, to be strong leaders and make clear and appropriate executive decisions.

Among the Board’s activities derived from these responsibilities are:

n With the assistance of senior management who report on the risks of Precision’s business, consider, and have input

into, the assessment and management of those risks on a regular basis. In addition, the Board receives quarterly

environmental incident reports, reports on legal issues and compliance reports;

n Appoint the Chief Executive Officer, and be consulted on the appointment of other senior officers and be responsible

for the consideration of succession issues;

n Through the Compensation Committee, to formally review and approve the Chief Executive Officer’s remuneration

and performance;

n Through the Corporate Governance and Nominating Committee, to nominate Directors and evaluate Board performance;

n Hold an annual strategic planning session at a special meeting of the Board and senior management; and

n Engage outside advisors, if necessary, at Precision’s expense.

At each regularly scheduled Board meeting, the Board meets without management present to ensure

that the Board is able to discharge its responsibilities independently of management.

A complete guideline of Director responsibilities can be found in the Corporate Governance section

of Precision’s website at www.precisiondrilling.com.



Director Orientation and Continuing Education

The Board of Precision will establish or identify and provide access to appropriate orientation programs,

sessions or materials for newly-elected Directors of Precision for their benefit either prior to or within a

reasonable period of time after their nomination or election as a Director. Precision will encourage, but

not require, Directors to periodically pursue or obtain appropriate programs, sessions or materials as to

the responsibilities of Directors of publicly-traded companies.

In 2004, the Chairman of the Corporate Governance and Nominating Committee met individually

with each Director to discuss the overall effectiveness and performance of the Board and its committees.

In addition, each Director completed individual peer assessments, the results of which were reviewed by

the Chairman of the Corporate Governance and Nominating Committee who provided feedback if

required. The Chairman of the Corporate Governance and Nominating Committee also met with each

Director to assess the performance of the Chairman of the Board.

Shareholdings of Board Members

Common shares owned (1) Stock options held (1)

W.C. (Mickey) Dunn 6,300 10,000

Robert J.S. Gibson 24,000 10,000

Patrick M. Murray 5,000 15,000

Frederick W. Pheasey nil 20,000

Robert L. Phillips 1,000 20,000

Hank B. Swartout 424,089 900,000

H. Garth Wiggins 6,100 10,000

(1) As at March 9, 2005

Communications Policy

Precision has a written Communications Policy pertaining to dealing with the media and with respect to all

continuous disclosure and public reporting requirements to its shareholders and the investment community.

Issues arising from this Communications Policy are dealt with by a committee of officers of the Corporation

consisting of the Chief Executive Officer, the Chief Financial Officer, the Senior Vice President Operations

Finance, the Vice President and Chief Accounting Officer, the Corporate Secretary, and legal counsel. The

disclosed information is released through newswire services, the internet website and mailings to shareholders.

Communication with the Board

Shareholders and other interested parties may communicate with the Board by contacting the Corporate

Secretary’s office. All communications received will be reviewed and delivered to appropriate members of

the Board, including the Chairman. The process for communication with the Corporate Secretary’s office

is posted on Precision’s website at www.precisiondrilling.com.



Committees of the Board

The Board of Directors has established an Audit Committee, a Compensation Committee and a Corporate

Governance and Nominating Committee. Directors, committees or members of a committee have the

right to engage an outside advisor at Precision’s expense. The Board delegates certain work to Board

committees. This allows in-depth analysis of issues by the committees and more time for the full Board to

discuss and debate items of business. Complete Charter and Terms of Reference of the Board committees

are available on the Corporate Governance section of Precision’s website at www.precisiondrilling.com.

audit committee

The Audit Committee consists of Patrick M. Murray (Chairman), H. Garth Wiggins and Robert J.S. Gibson,

all of whom are unrelated Directors and all of whom are independent under the rules of the NYSE. The Audit

Committee met six times in 2004.

It is critical that the external audit function, a mechanism key to investor protection, is working

effectively and efficiently, and that information is being relayed to the Board of Directors in an accurate and

timely fashion. The activities of the Audit Committee are fundamental to the process. The Audit Committee

has the responsibility for overseeing the development and maintenance of Precision’s systems for financial

reporting. Accounting for transactions and internal controls lies with senior management with oversight

responsibilities vested in the Board of Directors.

The Audit Committee is a permanent committee of the Board whose purpose is to assist the

Board by dealing with specific issues including:

n Those that may affect the integrity of financial reporting to the shareholders, accounting and internal controls;

n Precision’s compliance with legal and regulatory requirements as they relate to financial reporting matters;

n The performance of Precision’s internal audit function and its independent Auditor; and

n Conducting an evaluation of the external Auditor’s qualifications and independence.

The Audit Committee shall have the authority, to the extent it deems necessary or appropriate, to

retain special legal, accounting or other consultants to advise the Audit Committee and carry out its

duties, and to conduct or authorize investigations into any matters within its scope of responsibilities. The

Audit Committee shall have the authority to set and pay the compensation for any advisors employed by

the Audit Committee.

The Audit Committee has established processes for the confidential receipt and handling of

employee complaints (Whistleblower Hotline) which can be accessed anonymously through the internet,

by email or by voicemail. Additional information about the Whistleblower Hotline can be found on

Precision’s website at www.precisiondrilling.com.



The Audit Committee’s mandate is to:

n Review the annual financial and quarterly statements prepared for distribution to the shareholders;

n Report through the Chairman to the Board of Directors following each meeting of the Audit Committee. The report

would outline the nature of discussions and the major decisions reached by the Committee;

n Recommend to the Board of Directors the external Auditor to be appointed as the Auditor of the Corporation and

the compensation of such external Auditor;

n Require the external Auditor to report directly to the Audit Committee;

n Pre-approve all non-audit services to be provided to the Corporation or subsidiary entities by the Corporation’s

external Auditor. The Audit Committee may delegate to the Chairman of the Audit Committee the authority to pre-

approve non-audit services. Non-audit services that have been pre-approved by the Chairman of the Audit

Committee must be presented to the Audit Committee at its first scheduled meeting following such pre-approval;

n Review and discuss with management and the external Auditor, as applicable, (a) major issues regarding accounting

principles and financial statement presentations including any significant changes in the Corporation’s selection or

application of accounting principles, and major issues as to the adequacy of the Corporation’s internal controls and

any special audit steps adopted in light of material control deficiencies; (b) analyses prepared by management or

the external Auditor setting forth significant financial reporting issues and judgments made in connection with the

preparation of the financial statements, including analyses of the effects of alternative Canadian Generally

Accepted Accounting Principles (“GAAP”) methods on the financial statements; (c) any management letter provided

by the external Auditor and the Corporation’s response to that letter and any other material written communication

between the external Auditor and management; (d) any problems, difficulties or differences encountered in the

course of the audit work including any disagreements with management or restrictions on the scope of the external

Auditor’s activities or on access to requested information and management’s response thereto; (e) the effect of

regulatory and accounting initiatives, as well as any off-balance sheet structures on the financial statements of

the Corporation; and (f) earnings press releases (paying particular attention to any use of “pro forma” or

“adjusted” “non-GAAP information”), as well as financial information and earnings guidance (generally on a case-

by-case basis) provided to analysts and rating agencies;

n Discuss with management the Corporation’s major financial risk exposures and the steps management has taken

to monitor and control such exposures, including the Corporation’s risk assessment and risk management policies;

n Annually request and review a report from the external Auditor regarding (a) the external Auditor’s quality-

control procedures; (b) any material issues raised by the most recent quality-control review or peer review of

the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five

years respecting one or more independent audits carried out by the firm; (c) any steps taken to deal with any

such issues; and (d) all relationships between the external Auditor and the Corporation;

n Evaluate the qualifications, performance and independence of the external Auditor, including a review and

evaluation of the lead partner of the external Auditor and set clear hiring policies for employees or former

employees of the external Auditor;

n Ensure that the lead audit partner of the external Auditor and the audit partner responsible for reviewing the

audit are rotated at least every five years as required by the Sarbanes-Oxley Act of 2002, and further consider

rotation of the external Auditor’s firm itself;



Audit Committee mandate continued:

n Discuss with management and the external Auditor any accounting adjustments that were noted or proposed by

the external Auditor but were not adopted (as immaterial or otherwise);

n Establish procedures for (a) the receipt, retention and treatment of complaints received by the Corporation

regarding accounting, internal accounting controls or auditing matters, and (b) the confidential, anonymous

submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters;

n Review other financial information included in the Corporation’s Annual Report to ensure that it is consistent with

the Board of Directors’ knowledge of the affairs of the Corporation and is unbiased and non-selective;

n Review the Management’s Discussion and Analysis component of the Annual Report and the quarterly reports;

n Take steps to ensure that adequate procedures are in place for the review of the Corporation’s public disclosure

of financial information extracted or derived from the Corporation’s financial statements and periodically

assessing the adequacy of those procedures;

n Prepare any report required by law, regulations or exchange requirement to be included in the Corporation’s

periodic reports;

n Meet at least four times a year on a quarterly basis or more frequently as circumstances require, and at least

annually with the internal and external Auditor of the Corporation;

n Report regularly to the Board of Directors of the Corporation;

n Review planning for, and the results of, the annual external audit and solely approve:

– The external Auditor’s engagement letter as agreed between the external Auditor and financial management

of the Corporation;

– The reasonableness of audit fees as agreed between the external Auditor and corporate management;

– Audit scope, including locations to be visited, areas of audit risk, materiality as it affects audit judgment,

timetable, deadlines, coordination with internal audit;

– The audit report to the Corporation’s shareholders and any other reports prepared by the external Auditors;

– The informal reporting from the external Auditors on accounting systems and internal controls, including

management’s response;

– Non-audit related services provided by the external Auditor;

– Assessment of the external Auditor’s performance;

– The external Auditor’s appointment or re-appointment or replacement.

n Review and evaluate the scope, risk assessment, and nature of the internal audit plan and any subsequent changes;

n Consider and review the following issues with management and the head of internal audit:

– Significant findings of the internal audit group as well as management’s response to them;

– Any difficulties encountered in the course of their internal audits, including any restrictions on the scope of

their work or access to required information;

– The internal auditing budget and staffing;

– The Audit Services Charter;

– Compliance with the The Institute of Internal Auditors’ Standards for the Professional Practice of Internal Auditing;

n Approve the appointment, replacement, or dismissal of the head of the internal audit group; and

n Direct the head of the internal audit group to any review specific areas the Committee deems necessary.



In addition, the Audit Committee shall hold in-camera meetings with representatives of the external

and internal auditors to discuss the audit related issues including the quality of accounting personnel.

The Audit Committee shall have such other powers and duties as may from time to time by

resolution be assigned to it by the Board.

The Audit Committee shall also carry out an annual performance evaluation of that Committee and

review and reassess annually the adequacy of the charter and recommend changes, as appropriate to the

Board of Directors.

All members of the Audit Committee must be financially literate (having the ability to understand

balance sheets, income statements, cash flow statements and related notes to the consolidated financial

statements) and at least one member must qualify as a financial expert within the meaning of rules adopted by

the U.S. Securities and Exchange Commission pursuant to SOX, by having accounting or related financial

management expertise. Patrick M. Murray and H. Garth Wiggins both qualify as financial experts.

corporate governance and nominating committee

The Corporate Governance and Nominating Committee consists of Robert J.S. Gibson (Chairman),

W.C. (Mickey) Dunn, Frederick W. Pheasey, and Robert L. Phillips, all of whom are independent and

unrelated Directors. The Corporate Governance and Nominating Committee met five times in 2004.

The Corporate Governance and Nominating Committee has the general responsibility for developing and

monitoring Precision’s approach to corporate governance matters and is responsible for recommending to the

Board its size, composition and membership, succession planning for Directors and Board committee structure.

The Corporate Governance and Nominating Committee’s mandate is to:

n Set criteria for Board members, identify individuals qualified to become board members and, at the direction of

the Board, either select or recommend that the Board select, the director nominees for the next Annual General

Meeting of Shareholders;

n Develop and recommend a set of corporate governance principles applicable to the Corporation;

n Assess annually the effectiveness of the Board as a whole, the various committees of the Board (including the Committee)

and the contribution of individual Directors and make any necessary recommendations to the Board in relation thereto;

n Make recommendations to the Board as to the members of the various committees of the Board, taking into

account the eligibility for membership on such committees based upon applicable laws, rules and regulations;

n Ensure the provision of appropriate orientation for new Directors and availability of continuing education programs

for all Directors;

n Establish and monitor procedures for administering the relationship of the Board with the Corporation’s

management and ensure that the Board can function independently of management and ensure that the Chairmen

of the various committees of the Board shall have unimpeded access to senior management;

n Ensure that there is a process to allow all levels of employees access to appropriate Board members to bring

"Whistleblower" issues to the Board which are not being adequately dealt with by management of the Corporation;

n Establish and monitor procedures to ensure that the Board is made aware of current and evolving legislation,

regulations and guidelines relating to applicable corporate governance issues pertaining to regulated public issuers;

n Establish and monitor procedures which will enable an individual Director to engage an outside advisor at the

expense of the Corporation under appropriate circumstances on the basis that such procedures shall allow the

Committee to retain the discretion to approve the reasonableness and costs for such engagement;



The Corporate Governance and Nominating Committee’s mandate continued:

n Provide a report on corporate governance on a yearly basis to be included in the Management Information Circular

for the Annual General Meeting, which report shall compare the corporate governance practices of the Corporation

to the stated criteria listed in the Toronto Stock Exchange Report on Corporate Governance. This report shall also

take into account other corporate governance requirements required by the New York Stock Exchange and other

applicable entities that have jurisdiction over the Corporation;

n Review and reassess, at least annually, the adequacy of the Corporate Governance Guidelines of the Corporation

and recommend any proposed changes to the Board for approval;

n Review and reassess, annually, the adequacy of the Corporate Governance and Nominating Committee Terms of

Reference and recommend any proposed changes to the Board for approval; and

n Report, on a regular basis to the Board, on its deliberations.

compensation committee

The Compensation Committee consists of Frederick W. Pheasey (Chairman), W.C. (Mickey) Dunn and

Robert L. Phillips, all of whom are independent and unrelated Directors. The Compensation Committee

met two times in 2004.

The Compensation Committee discharges the Board’s responsibilities relating to compensation of

Precision’s executives and produces an annual report on executive compensation for inclusion in Precision’s

management information circular and proxy statements in accordance with applicable rules and regulations.

The Compensation Committee’s mandate is to:

n Review and approve the Corporation’s goals and objectives relevant to the CEO’s compensation and to recommend

for approval by the independent directors, the CEO’s compensation package in light of the goals and objectives;

n Evaluate the CEO’s performance on an annual basis as such performance relates to the established goals and objectives;

n Make recommendations to the Board with respect to incentive compensation and equity based plans;

n Adopt, administer, approve and ratify awards under incentive compensation and stock plans, including amendments to the

awards made under any such plans and review and monitor awards under such plans;

n Review with the CEO of the Corporation and comment upon: (a) the compensation plans for senior executive

officers of the Corporation; and (b) recommendations for the appointment of senior executive officers prior to

consideration by the Board of Directors;

n Have the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of

director, CEO or senior executive compensation and shall have the sole authority to approve the consultant’s fees and

other retention terms as it relates to such evaluation. The Compensation Committee shall also have authority to obtain

advice and assistance from internal or external legal, accounting or other advisors;

n Review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for

approval. The Compensation Committee shall annually review its own performance;

n Annually review and recommend the compensation for non-employee Directors; and

n Review executive compensation disclosure before the public disclosure by the Corporation.



Director Compensation

The Board, through its Compensation Committee, periodically reviews the adequacy and form of

compensation for its Directors. The Board considers their commitment, comparative fees, responsibilities and

potential liabilities in determining remuneration. During the 2004 fiscal year, compensation was in the form of

an annual honorarium payment of US$16,000 and meeting fees of US$1,000 per meeting for attendance in

person and US$500 for attendance by telephone. The Chairmen of the Compensation Committee and the

Corporate Governance and Nominating Committee are also entitled to a yearly honorarium of US$5,000 and

the Chairman of the Audit Committee is also entitled to receive a yearly honorarium of US$10,000. Members

of the Audit Committee receive meeting fees of US$2,000 per meeting for attendance in person and US$500 for

attendance by telephone. The Lead Director receives US$2,000 per meeting for attendance in person. For

Directors required to travel more than three hours by air to Board or committee meetings, a travel allowance of

US$1,000 is paid. In addition, each non-executive Director has been granted options to purchase common

shares of the Corporation (“Options”) with an exercise price equal to the market price of the Corporation’s

Common Shares at the time of the grant.

Summary of Board, Committee Meeting Attendance and Total Compensation Paid

CommitteeDirector Board(1) Committee(1) Meeting(2) Board Chair Travel Total Expenses(3)

Meetings Meetings Fees Retainer Retainer Allowance Fees PaidAttended Attended US$ US$ US$ US$ US$ CDN$

W. C. (Mickey) Dunn 8/8 7/7 18,000 16,000 NIL 1,000 35,000 771

Robert J.S. Gibson 8/8 11/11 23,500 16,000 5,000 N/A 44,500 NIL

Murray K. Mullen(4) 5/8 2/2 9,000 8,000 2,500 NIL 9,500 NIL

Patrick M. Murray 8/8 6/6 17,500 16,000 7,500 10,000 51,000 23,128

Frederick W. Pheasey(5) 8/8 6/7 15,000 16,000 2,500 N/A 33,500 13,309

Robert L. Phillips(6)(7) 3/8 2/7 9,000 16,000 NIL NIL 25,000 5,195

Hank B. Swartout(8) 8/8 N/A N/A N/A N/A N/A N/A N/A

H. Garth Wiggins 8/8 6/6 25,000 16,000 NIL NIL 41,000 68

(1) Attendance in person or by telephone.

(2) Includes Lead Director fees, attendance at Strategic Planning Meetings and attendance at meetings held with management on behalf of the Board.

(3) Expenses that are incurred by each Director related to Board or Committee meeting attendance are reimbursed.

(4) Mr. Mullen resigned from the Board of Directors on October 14, 2004.

(5) Mr. Pheasey attended 5/5 Corporate Governance and Nominating Committee meetings. Mr. Pheasey was appointed to the

Compensation Committee on July 27, 2004 and attended all Committee meetings subsequent to that appointment.

(6) Mr. Phillips was elected to the Board May 11, 2004. Mr. Phillips attended 3/3 Board meetings held subsequent to his election.

(7) Mr. Phillips was elected to the Board May 11, 2004 and was appointed to the Corporate Governance and Nominating Committee on

that same date. Mr. Phillips attended 2/3 meetings of that committee held subsequent to that appointment. Mr. Phillips was appointed

to the Compensation Committee on October 27, 2004. There have been no Compensation Committee meetings held subsequent to Mr.

Phillips’ appointment to that committee.

(8) Hank B. Swartout is a member of Management, therefore does not receive retainer or meeting fees.


management’s discussion and analysis 55

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Management’s Discussion and Analysis, prepared as at March 9, 2005, focuses on key statistics from

the Consolidated Financial Statements, and pertains to known risks and uncertainties relating to the

oilfield and industrial service sectors. This discussion should not be considered all-inclusive, as it excludes

changes that may occur in general economic, political and environmental conditions. Additionally, other

elements may or may not occur which could affect the Corporation in the future. In order to obtain the

best overall perspective, this discussion should be read in conjunction with the material contained in other

parts of this annual report, including the audited Consolidated Financial Statements and the related notes.

The effects on the Consolidated Financial Statements arising from differences in generally accepted

accounting principles between Canada and the United States are described in Note 15 to the Consolidated

Financial Statements. Additional information relating to Precision Drilling Corporation, including the

Annual Information Form, has been filed with SEDAR and is available at www.sedar.com.

Highlights(Stated in thousands of Canadian dollars, except per share amounts, which are presented on a diluted basis)

Increase Increase IncreaseYears ended December 31, 2004 (Decrease) 2003 (Decrease) 2002 (Decrease)

Revenue 2,325,216 425,069 1,900,147 349,549 1,550,598 (247,539)

% change 22% 23% (14%)

Operating earnings (1) 424,453 142,975 281,478 139,124 142,354 (210,881)

% change 51% 98% (60%)

Earnings from

continuing operations 249,587 69,684 179,903 98,680 81,223 (90,600)

% change 39% 121% (53%)

Net earnings 247,404 66,930 180,474 95,488 84,986 (101,548)

% change 37% 112% (54%)

Earnings per share from

continuing operations 4.26 1.01 3.25 1.77 1.48 (1.69)

% change 31% 120% (53%)

Net earnings per share 4.22 0.96 3.26 1.71 1.55 (1.89)

% change 29% 110% (55%)

Cash flow from

continuing operations 444,800 191,827 252,973 64,550 188,423 (233,722)

% change 76% 34% (55%)

Net capital spending 252,604 (37,900) 290,504 50,961 239,543 (101,418)

% change (13%) 21% (30%)

(1) Operating earnings is not a recognized measure under Canadian generally accepted accounting principles (GAAP). Management

believes that in addition to net earnings, operating earnings is a useful supplemental measure as it provides an indication of the results

generated by the Corporation’s principal business activities prior to consideration of how those activities are financed or how the

results are taxed in various jurisdictions. Investors should be cautioned, however, that operating earnings should not be construed as

an alternative to net earnings determined in accordance with GAAP as an indicator of Precision’s performance. Precision’s method of

calculating operating earnings may differ from other companies and, accordingly, operating earnings may not be comparable to

measures used by other companies.



Financial Position and Ratios(Stated in thousands of Canadian dollars)Years ended December 31, 2004 2003 2002

Working capital $ 557,311 $ 248,994 $ 217,788

Working capital ratio 2.5 1.6 1.6

Long-term debt (1) $ 718,870 $ 399,422 $ 514,878

Total assets $ 3,850,773 $ 2,938,608 $ 2,775,747

Long-term debt to long-term debt plus equity (1) 0.24 0.19 0.25

Long-term debt to cash flow from continuing operations (1) 1.6 1.6 2.7

Interest coverage (2) 9.0 8.0 4.1

(1) Excludes current portion of long-term debt which is included in working capital.

(2) Operating earnings divided by net interest expense.

Economic conditions for the energy industry showed significant improvement in 2004 with crude

oil and natural gas prices maintaining their historically high levels. In May, Precision completed two

unique acquisitions that significantly advanced the Corporation’s strategy to be a global oilfield service

provider. These two factors drove the 22% increase in revenue with a 37% increase in net earnings,

demonstrating the high degree of operating leverage in our business.

The acquisition of 31 internationally based land rigs and associated support equipment brought far

more than just high quality tangible assets to Precision. The management and employees associated with

the acquired rigs have established the group as a long-term and highly regarded player in the Middle East

market. This acquisition also uniquely positions Precision to offer our international customers an

integrated package of products and services, combining our drilling expertise with the products and

services of our Energy Services segment. Our strategy for the international drilling segment in 2005 will

be to leverage our existing asset and knowledge base in deep drilling in order to maximize rig utilization

within existing markets where we have a presence.

The acquisition of Reeves added a unique dimension to our formation evaluation business. Their

tools and service lines not only complement the existing Precision product lines for formation evaluation,

but also provide a new offering of conveyance methods for delivering critical subsurface information.

These service offerings bring increased market penetration for Precision in the North American land

based wireline business. The combined portfolio of services will also provide the Corporation with a

significant sustainable competitive advantage in international markets.

We recognized that the group previously identified as Technology Services needed to be further

streamlined during 2004 with the objective of positioning this group solidly in the mainstream of drilling

activity around the world. With this in mind, we branded the entities within this group under the name

Precision Energy Services to provide a single identity for our global service lines. We continue to focus our

efforts on those technologies and services that are needed in the development or exploitation of the

maturing oil and gas fields around the world.

Energy Services had a much improved year financially. Revenue increased by 26% and operating

earnings improved to $37 million from a loss of $4 million in 2003 reflecting the impact of refocusing our

efforts and the development and implementation of our product line strategies.

Although international revenue sources grew to 37% of total revenue in 2004 compared to 30% in

2003, the Canadian market, and our Canadian Contract Drilling group in particular, continued to be the

foundation of our company. Our Canadian businesses experienced one of the most active years on record

with nearly 22,000 wells being drilled. The resulting high demand for our services lead to improved

pricing for the majority of our product lines.



Summary of Income Statement(Stated in thousands of Canadian dollars)Years ended December 31, 2004 2003 2002

Operating earnings (loss)

Contract Drilling $ 399,487 $ 284,850 $ 183,859

Energy Services 36,719 (3,847) (40,033)

Rental and Production 40,026 39,067 29,913

Corporate and Other (51,779) (38,592) (31,385)

424,453 281,478 142,354

Interest, net 46,909 35,050 35,123

Dividend income – – (39)

Gain on disposal of investments (4,899) (3,355) (900)

Earnings from continuing operations before

income taxes and non-controlling interest 382,443 249,783 108,170

Income taxes 131,558 69,880 26,947

Earnings from continuing operations

before non-controlling interest 250,885 179,903 81,223

Non-controlling interest 1,298 – –

Earnings from continuing operations 249,587 179,903 81,223

Discontinued operations (2,183) 571 3,763

Net earnings $ 247,404 $ 180,474 $ 84,986

Economic Drivers of the Global Oilfield Services Business

Carbon-based fuels account for over 80% of the world’s energy sources with hydrocarbons (crude oil and

natural gas) combining to supply over 60% of the world’s energy needs. Coal has been used for over 200

years, crude oil for over 140 years and natural gas for 50 years. Hydro and nuclear electric power is

contributing to the world’s total energy supply as are alternative energy sources such as solar and wind. As

history has proven, however, it takes decades, if not centuries, to displace energy sources. Before carbon-

based fuels can be replaced in any meaningful way, significant research and development is required to

perfect economic production methods and massive investment is required to build distribution networks

and to replace energy transfer devices such as internal combustion engines. As a result, hydrocarbon

production will remain critical to the world’s energy needs for the foreseeable future with demand

forecasted by many to continue to increase.

2002 WORLD ENERGY PRODUCTION BY SOURCE (Quadrillion Btu)

175

150

125

100

75

50

25

0

Crude Oiland NGPL (1)

Coal NaturalGas

NuclearElectric Power

Hydro-electricPower

Geothermaland Other (2)

Source: Energy Information Administration

(1) Natural gas plant liquids.

(2) Net electricity generation from wood, waste, solar, and wind.



The provision of these commodities to the consuming public involves a number of players, each of

which take on different risks in the process of exploring for, producing, refining and distributing

hydrocarbons and its associated refined by-products. Exploration and production companies assume the

risk of finding hydrocarbons in pools of sufficient size to economically develop and produce the reserves.

The economics of exploration and production is dictated by the current and expected future margin

between the cost to find and develop hydrocarbons and the price at which those products can be sold. The

wider the margin, the more incentive there is to undertake the activities involved in the process of finding

and development.

These activities include acquiring access to prospective lands, shooting seismic to detect the presence

of hydrocarbons, drilling wells and measuring the characteristics of subsurface geological formations.

Exploration and production companies hire oilfield service companies to perform the majority of these

services. The revenue for an oilfield service company is an exploration and production company’s finding

and development costs.

Providing these oilfield services incorporates

three main elements: people, technology and

equipment. Attracting, training and retaining

qualified employees is the single biggest challenge

for a service company. Exploration and production

activities are taking place in an ever increasing

variety of surface and subsurface conditions.

Developing technology and building equipment

that can withstand increasing physical challenges

and operate more efficiently is key to maintaining

and improving the economics of crude oil and

natural gas production. The primary economic risks

assumed by oilfield service companies are the volatility of activity levels that translate into utilization rates for

its investment in people, technology and equipment, and cost control to maximize the margins earned.

The economics of a service company are thus largely driven by the current and expected price of

crude oil and natural gas, which are determined by the supply and demand for the commodity. Since

crude oil can be transported relatively easily, it is priced in a world wide market, which is influenced by a

wide array of economic and political factors. Natural gas is priced in more local markets due to the

requirement to transport this gaseous product in pressurized pipelines, although this is changing slowly

with the emergence of liquified natural gas (“LNG”).

20 YEARS OF OIL PRICES AND GLOBAL RIG COUNTS

60.00

US$/Bbl

50.00

40.00

30.00

20.00

0 0

10.00

4,500

3,750

3,000

2,250

1,500

750

Rigs

85Jan 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

US$/Bbl Rig Count

OILFIELD SPENDING WORLDWIDE

Reservoir Info

Drilling

Drilling Related Services

Completion

Infrastructure

Production/Maintenance

Logistical Support

16%

6%

14%

16%

26%

17%

Source: Spears & Associates, Morgan Stanley Research

The worldwide oilfield services industry is a $100+ billion business.

5%



Price increases over the last two years appear to have moved crude oil prices into a new paradigm

supported by supply and demand fundamentals. World oil demand increased in both 2003 and 2004 as a

result of growing world economies led by China and India. While perhaps not at the same pace, many

prognosticators are forecasting this growth in demand to continue. Crude oil production however, has not

kept pace with the growing demand. In particular, OPEC’s excess production capacity has hit 30-year lows.

Providing further support for crude oil prices are continued global geopolitical risks, in particular the

possibility of further terrorism in Iraq and Saudi Arabia, political uncertainty in Russia and instability in

Nigeria and Venezuela. The decline in world surplus production capacity has increased OPEC’s ability to

maintain pricing at these levels as has a slowing in the growth of non-OPEC oil production.

As illustrated above, natural gas prices tend to move in lock step with crude oil prices maintaining

the price per unit of energy content of each fuel relatively consistent. This pricing relationship may be

disrupted for short periods of time due to oversupply or excess demand for natural gas in local market

areas. The fundamentals of energy supply and demand discussed earlier, however, bode well for the

continuance of strong natural gas prices.

Precision’s Development in the Oilfield Services Business

Precision operates on a global basis and provides a wide array of services to its customers. From its drilling

rig roots to oilfield well servicing, wireline, drilling & evaluation and production services to rental

equipment offerings, the customer remains our focus. Further the Corporation retains a significant and

growing industrial cleaning and production business in “downstream” oilfield production facilities that

include North America refineries and oil sands mining and upgrading in northern Alberta.

Precision conducts its business through three segments. The Contract Drilling segment includes

drilling rigs, service rigs and snubbing units, procurement and distribution of oilfield supplies, camp and

catering services, and the manufacture, sale and repair of drilling equipment. The Energy Services segment

includes wireline, drilling & evaluation and production services. The Rental and Production segment

includes oilfield equipment rental services and industrial process services.

WTI OIL AND HENRY HUB GAS PRICES

60

48

36

24

0

12

10

8

6

4

0

3

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04

US$/Bbl

Source: Bank of America, Bloomberg, Natural Gas Week, Reuters, EIA

US$/Mcf

US$/Mcf 4 Year Gas Average US$/Bbl 4 Year Oil Average

Jan



The following graphs illustrate how each of the Contract Drilling, Energy Services and Rental and

Production segments have historically contributed to Precision’s profitability and investment.

contract drilling

The Contract Drilling segment brought a new

dynamic to its business in 2004 with the

acquisition of 31 internationally based land rigs in

May. Prior to this, the international strategy was to

grow our rig count in select regions where our

technology, which had been proven in the

Canadian market place, differentiated us from the

competition and where a significant presence

could be established. The acquisition changed that

approach somewhat by adding established

businesses complete with high quality equipment and, more importantly, experienced senior management

and long serving, indigenized field personnel. Of particular interest to Precision was the instant economies

of scale and credibility added to our Middle East presence where the newly acquired business had been

operating for over 40 years.

The Canadian business units within the segment are well established. Each core business unit has

undergone asset growth and has a lead market role within Canada. The strength to successfully integrate

acquisitions with vertical integration within and between related ancillary business units has been

developed through the handling of acquisitions over the past 20 years.

Precision’s roots began in western Canada as a land drilling contractor and the Corporation’s

development has matched that of the WCSB. Initially founded in 1985 as Cypress Drilling Ltd., the

business quickly grew from four drilling rigs to 19 with the reverse takeover in 1987 of Precision Drilling

Ltd., a company formed in 1952. Over the following decade a series of nine acquisitions expanded the

Canadian drilling rig fleet to 200 as of May 1997 and a 40% market share of industry rigs. International

operations in Venezuela commenced in 1992 with the Sierra Drilling acquisition. Diversification into

service rigs and snubbing operations came with the 1996 acquisition of EnServ Corporation. In the second

half of the year 2000, Precision became fully vested in the Canadian service rig business as the CenAlta

Energy Services Inc. acquisition created a combined fleet of 257 service rigs and a leading industry market

share of 28%. The additional acquisition in 2000 of coil tubing drilling rigs and other shallow drilling rigs

rounded out key milestones in our Canadian asset base growth.

2,500 Contract Drilling

2,000

1,500

1,000

500

0

Energy Services

Rental & Production

Total

2001 2002 2003 2004

REVENUE ($ Millions)

350 Contract Drilling

300

250

200

150

100

50

0

Energy Services

Rental & Production

Total

2001 2002 2003 2004

CAPITAL SPENDING ($ Millions)

(before acquisitions)

500 Contract Drilling

400

300

200

100

0

-100

Energy Services

Rental & Production

Total

2001 2002 2003 2004

OPERATING EARNINGS ($ Millions)



While each business unit is at its own stage in the business life cycle continuum, drilling has matured

the most over the past three years. Today the business has developed critical equipment mass and employee

depth. It has developed integrity-based systems that enable the business to evolve in meeting fundamental

industry challenges while delivering better profit and safety performance. Employee retention and seasonal

cycles remain a huge manpower challenge for the industry. This condition is rather unique in that there is

a reasonable supply of equipment; it is the people element that keeps the market in tight supply. The supply

of experienced people yields profit leverage for oilfield service companies, not just the “iron”.

Core Business AssetsFive Year History, end of year status

2004 2003 2002 2001 2000

International (beyond Canada and the U.S.)

Drilling rigs 48 19 16 15 12

United States

Drilling rigs – 1 1 4 2

Canada

Drilling rigs – 32% of industry 229 225 226 229 230

Service rigs – 27% of industry 239 239 240 257 257

Rig assist snubbing units – 33% of industry 26 25 23 24 19

Oilfield drilling camps – 25% of industry 87 88 74 74 74

Enabling infrastructure (Canada – in square feet)

Equipment manufacture facility 48,000 48,000 48,000 48,000 38,000

Consumable supply procurement

and distribution facility 40,000 40,000 40,000 40,000 40,000

The following tables provide a worldwide summary of Precision’s drilling and service rig fleets.

2004 2003Type of Drilling Rig Depth Canada International Total Canada International Total

Single to 1,200 m 16 – 16 17 – 17

Super Single® to 2,500 m 21 3 24 16 4 20

Double to 3,500 m 95 10 104 96 7 103

Light triple to 3,600 m 45 10 52 47 8 55

Heavy triple to 9,150 m 41 25 70 39 0 39

Coiled tubing to 1,500 m 11 – 11 11 – 11

Total fleet 229 48 277 226 19 245

Type of Service Rig 2004 2003 2002 2001 2000

Single – 1 1 4 4

Freestanding mobile single 86 75 50 23 8

Mobile single 19 29 55 91 105

Double 65 57 58 60 59

Freestanding mobile double 9 6 6 5 4

Mobile double 42 46 45 48 50

Heavy double 1 7 7 9 9

Freestanding heavy double 1 2 2 – –

Freestanding slant 16 16 16 16 16

Swab – – – 1 2

Total fleet 239 239 240 257 257



energy services

Precision Energy Services (formerly Technology Services) commenced in 1998 with the objective of

expanding its suite of well services, globalizing our presence and introducing a step change in technologies

and services provided to our customers. While the downhole service market was, and remains, dominated

by three large multi-nationals, Precision identified a niche for a more nimble, Canadian headquartered

participant to enhance competition based upon its ability to deliver quality, cost effective products and

services. The Corporation’s mature drilling operation provided the reputation of a respected service

provider and the financial backing required to take on such a venture. In turn, the Precision Energy

Services business would enable the Corporation to participate in offshore oil and gas operations, a market

previously outside its capabilities.

Through to 2003, activities aimed at

achieving Energy Services’ objectives were

undertaken across a broad front. In 1998, a

foothold into the Energy Services market was

established through the acquisition of Northland

Energy and expanded in 1999 with the acquisition

of Computalog Ltd. Significant investments in

research and development were made to create the

next generation of Logging-While-Drilling

(LWD), Measurement-While-Drilling (MWD)

and Rotary Steerable Services (RSS) tools.

Through the acquisition of BecField Drilling

Services and the EM assets of GeoServices S.A., the segment gained access to innovative technologies and

established a presence in certain regional markets. By 2001, additional regional centres were founded in

the U.S., Mexico, Latin America, Europe/Africa, Asia/Pacific and the Middle East. The scope of these

initiatives, however, combined with the delay in development and deployment of new technologies

resulted in a cost structure that proved uneconomic for the associated revenues being generated. The

outcome was a net operating loss in 2002 of $40.0 million.

Consequently, Energy Services refocused its efforts in 2003 with the renewed goal of controlled and

profitable growth in targeted areas where an acceptable long-term return on investment was achievable.

New management was injected into the business, positively changing the style and culture of the

organization. Upon examination of its then existing activities, Precision identified non-core businesses for

disposal and exited non-profitable product lines. Other businesses were rationalized and refocused. In some

instances, this involved consolidating management functions where geographically possible. In others, cost

structures were reduced to better match anticipated revenue levels and customer contracts were re-

evaluated where uneconomic situations existed. Furthermore, the segment reviewed its technology

development strategy and established a new “technology roadmap”, which rationalized the existing broad

inventory of projects and focused its limited resources on applications that specifically targeted customers’

current and future needs. After incremental expenses of $15 million related to the above restructuring

activities, operating results improved by $36 million over 2002 to a net operating loss of $4 million in 2003,

reflecting the impact of our efforts.

In 2004, Precision continued to build upon the foundation established in 2003. The Corporation

completed the sales of the non-core businesses of Polar Completions (well completion tools), United

Diamond Ltd. (PDC bits) and Fleet Cementers Inc. (pumping). Reflecting its renewed focus, the segment’s

products and services were consolidated under one new brand: Precision Energy Services. At the same

time, the business was reorganized into three product lines: Wireline Services, Drilling & Evaluation and

Production Services supported by a strong hemisphere based infrastructure. This enabled concentration

40

30

20

10

0

-10

-20

-30

-40

2002 2003 2004

OPERATING INCOME (LOSS) ($ Millions)



of expansion efforts on targeted regions and services, leveraging off of our existing businesses and the

technology roadmap. Wireline provides open hole, cased hole and slickline wireline logging and

mechanical services. Drilling & Evaluation offers directional drilling and formation evaluation-while-

drilling services, including the LWD/HEL™, MWD (electromagnetic and mud pulse telemetry) and RSS

suite of tools. Production Services supplies well testing, controlled and managed pressure drilling and

early-stage production facilities and services.

Within each product line, strategies were developed and implemented based upon an assessment of

existing and future market dynamics and our ability to capitalize on our strengths relative to those trends.

Globally, aging oilfields and regions have shifted industry focus to exploitation as opposed to exploration.

Furthermore, the Corporation has seen the greatest increase in upstream spending from national oil

companies as opposed to the traditional major, fully integrated, oil and gas companies. Identifying and

understanding these trends has, in turn, tailored our strategy and focused our management resources,

capital spending, product development initiatives and marketing more effectively. In Wireline Services for

instance, Precision has positioned itself as an innovative field service provider primarily in marginal or

mature onshore markets. As part of this strategy, the segment acquired Reeves Oilfield Services in mid-

2004 to strengthen its suite of open hole wireline services in this particular global market segment. This

acquisition provided access to world class personnel and unique enabling technology that complements

our existing fleet of conventional open hole tools and services. In Drilling & Evaluation, the Corporation’s

strategy is to grow the business by leveraging off its operations in existing countries to facilitate the

commercialization of the LWD and RSS tools. In marginal field development activities, which is our

primary market focus, customer results are mainly driven from efficient, cost effective well construction.

Energy Services’ aim is to deliver “fit for purpose” cost effective solutions that meaningfully enhance the

performance of our customers’ well construction activities. For Production Services, the near term

strategy is expansion through organic growth, with a focus on cost control as well as capitalizing on cross

product line opportunities. Precision continues to be well positioned to help satisfy our customers’

increasing appetite for underbalanced drilling, an area where Production Services is recognized as an

engineering leader. Additional growth potential lies in our ability to lever off this reputation to include

other complementary services into integrated cross product line packaged solutions for customers.

rental and production

Precision entered this segment of its business in 1996 through the acquisition of EnServ Corporation.

Since then, the Corporation has reduced the operations carried on by this segment through strategic

divestitures, taking advantage of attractive valuations to dispose of operations not core to Precision’s

future growth plans. The industrial rental division was sold in February 1999 while the gas compression

operation was sold effective January 1, 2003, each of which produced gains for the Corporation. Both of

the businesses currently carried on by the segment, namely, industrial plant maintenance and oilfield

equipment rental, have grown through acquisitions and the pursuit of internal growth opportunities.

Precision’s plant maintenance operations have become increasingly focused on the expanding

activity in northern Alberta’s oilsands regions. The acquisition of JJay Exchanger Industries Ltd. in the

second quarter of 2000 solidified the segment’s position in this market as a provider of all the required

services in a major refinery or petro-chemical plant turnaround/shutdown.

Innovation has also played an important role in the segment’s steady growth. Research and

development efforts have grown out of our unique knowledge and experience, with the focus on developing

new tools and applications that are marketable in the field. Examples of products introduced to the market

include the SuperLance™ System, which combines Precision’s experience in coil tubing drilling with water

blasting technology to increase the efficiency of cleaning coker units in refineries, and various adaptations

of robotics technology to increase the safety and timeliness of tank cleaning operations.



The oilfield equipment rental business expanded its product offerings in 1997 with the acquisition

of substantially all of the business assets of Ducharme Oilfield Rentals Ltd. whose primary product line

was the rental of portable industrial housing, used at many remote drilling locations in western Canada.

Since then many initiatives have been undertaken to integrate the delivery of products to customers and

increase the profitability of operations. Among them was the closure of the wellsite trailer manufacturing

facility in favour of less costly outsourcing arrangements in 2002 and more recently the consolidation of

all rental product lines to form Precision Rentals Ltd. This latter move was in response to changing and

growing customer needs to simplify their purchasing decisions by producing one point of contact to access

all their rental needs.

Results of Operations

contract drilling(Stated in thousands of Canadian dollars, except per day/hour amounts)

% of % of % ofYears ended December 31, 2004 Revenue 2003 Revenue 2002 Revenue

Revenue $ 1,235,410 $ 992,824 $ 770,147

Expenses:

Operating 704,911 57.1 602,418 60.7 491,433 63.8

General and administrative 35,091 2.8 30,267 3.1 30,463 4.0

Depreciation 92,161 7.5 77,725 7.8 62,524 8.1

Foreign exchange 3,760 0.3 (2,436) (0.3) 1,868 0.2

Operating earnings $ 399,487 32.3 $ 284,850 28.7 $ 183,859 23.9

% % %Increase Increase Increase

2004 (Decrease) 2003 (Decrease) 2002 (Decrease)

Number of drilling rigs (end of year) 277 13.1 245 0.8 243 (2.0)

Drilling operating days 52,228 11.8 46,715 33.2 35,081 (25.6)

Revenue per operating day $ 17,953 12.3 $ 15,984 (0.1) $ 16,008 (0.1)

Number of service rigs (end of year) 239 – 239 (0.4) 240 (6.6)

Service rig operating hours 472,008 7.4 439,519 12.1 392,210 (20.4)

Revenue per operating hour $513 11.0 $462 3.6 $446 4.4

2004 Compared to 2003 The Contract Drilling segment generated record financial results in 2004 on the

strength of increasing global rig demand and expansion associated with the acquisition of 31

internationally based land drilling rigs. Revenue increased by $243 million or 24% over 2003 to $1,235

million while operating earnings increased by

$115 million or 40% to $399 million. Revenue and

earnings growth were driven by three factors. First,

a major acquisition of land based drilling assets

from GlobalSanteFe Corporation in May 2004

grew our international rig fleet exponentially.

Second, continuing strength in oil and natural

gas commodity price futures led to greater

customer demand for all of our oilfield services

and the leverage to increase revenue rates.

1,250

Canadian Drilling

1,000

750

250

500

0

Canadian Well Servicing Canadian Camp & Catering

Canadian Snubbing International Drilling

2002 2003 2004

CONTRACT DRILLING REVENUE

BY PRODUCT LINE ($ Millions)



Third, operational execution and diligence allowed for the efficient delivery of services and control over

the rate of operating and administrative cost escalation.

In absolute dollar terms, Contract Drilling revenue has grown at a high steady pace in recent years. For

international drilling, the growth in 2004 is primarily attributable to investments made to increase the size

and market scope of our international land drilling rig operation. Our international rig fleet grew by a net

153% to exit the year at a count of 48, while utilization improved as the year progressed. For Canadian based

operations, our equipment fleet size is slightly larger and each respective business continues with a lead

Canadian market share. Canadian revenue growth in 2004 is primarily attributable to revenue rate increases.

Canadian Contract Drilling

The current year has set new financial benchmarks for Canadian Contract Drilling as 2004 revenue

increased $110 million or 13% over 2003 to $989 million. The majority of 2004 revenue rate increases

flowed through to operating earnings as overall equipment activity was very similar to 2003 and costs were

kept under control. Although industry activity in Canada was approximately 5% higher, the industry

supply of additional drilling rigs hindered our opportunities to gain higher utilization over 2003.

In summary, 2004 was an excellent year with initial winter drilling revenue rates holding firm

through the seasonally soft “spring break up” second quarter. While adverse third quarter weather

prevented some wells from being drilled, it did add to the backlog of work, strengthening spot market

demand and enabling us to put through an additional revenue rate increase to start the fourth quarter. For

service rig operations, revenue rate increases occurred throughout the year with significant improvement

to start the fourth quarter. Service rig operating margins are still well below other Canadian Contract

Drilling businesses, but our reinvestment in the employees and the equipment is narrowing the gap.

The revenue and operating margin improvement is particularly noteworthy as equipment activity in

our two core business, when compared to 2003, went in opposite directions. Service rig hours increased by

32,489 and four fleet utilization percentage points over 2003 to 472,008 hours and 54% while drilling rig

spud to rig release operating days decreased by 1,100 days and two fleet utilization percentage points over

2003 to 41,625 and 50%. The downward pressure

on revenue from the decline in drilling rig activity

was more than offset by rising revenue day rates, as

drilling revenue accounted for 50% of the total

revenue increase in Canada. The remaining

$54 million revenue increase was generated by a

combination of higher activity and higher revenue

rates in each of our service rig, snubbing and camp

and catering operations.

Demand for oilfield services in Canada has

been strengthening for nine successive quarters,

from late 2002 through 2004. This demand has

enabled Canadian Contract Drilling to steadily

increase revenue and underlying operating margins even though our overall fleet of equipment has

increased just slightly. In fact, the pace of our revenue increase exceeded the rise in industry wells drilled

by a 3% margin. Wells drilled in western Canada, as reported on a completion basis, increased by 1,742 or

9% over 2003 to a record well count of 21,593. Revenue out performance is due, in part, to the rising

number of wells in production within western Canada, and the positive impact on production services

associated with our service rig and snubbing activity.

24,000

Wells Drilled on a Completed Basis in Western Canada (source CAODC)

20,000

16,000

12,000

4,000

0

1,200

(Wells) ($ Millions)

1,000

800

600

8,000 400

200

0

Precision’s Contract DrillingRevenue in Canada ($ Millions)

2002 2003 2004

INDUSTRY WELLS DRILLED AND PRECISION’S

CANADIAN CONTRACT DRILLING REVENUE



While there is a correlation between our revenue and the industry well count, further analysis

provides insight to upstream drilling trends. The rising well count is not delivering the same increase in

rig operating days as the time it takes to drill a well continues to decrease. The weighting towards drilling

for shallow natural gas and natural gas in coal accounts for a growing percentage of the total well count.

In many situations these wells are drilled in hours not days. The number of drilling rigs registered with

the Canadian Association of Oilwell Drilling Contractors (CAODC) increased by 40 or 6% over 2003 to

exit 2004 at a record rig count of 700. The number of wells drilled in western Canada increased by 9% over

2003 yet rig operating days, as reported by the CAODC, only increased by 5%. The number of service rigs

registered with the CAODC was relatively constant at approximately 900.

To summarize, drilling contractors in western Canada have increased the available rig count mix to

a level that industry will require more than 20,000 wells a year to keep annual rig operating day utilization

above 50%. For 2005, indications are that contractors will increase the available rig count by at least

another 40 rigs, raising the well count threshold even higher.

International Contract Drilling

In financial terms, improving utilization and the impact of the acquisition mid-way through the second

quarter of 2004 enabled International Contract Drilling to increase revenue by $133 million or 117% over

2003 to $247 million.

After a decade of modest escalating growth through the deployment of drilling rigs from Canada,

the Corporation became a major international land drilling rig contractor with the successful completion

of a $436 million acquisition in May 2004. The sheer quality and completeness of the acquisition –

management, employees and equipment – set a new foundation and direction for Contract Drilling.

Our international drilling rig fleet carried reasonably high utilization throughout the year with the

newly acquired strength in the Middle East. Third quarter rig utilization was adversely affected by a

slowdown in Mexico while fourth quarter utilization benefited from a resumption in Mexico and higher

utilization in Venezuela. During the fourth quarter, the rig count in Mexico decreased by one, as a Super

Single® rig was moved to Canada.

International Contract Drilling generated higher percentage margins as compared to 2003 with

incremental results over the remaining seven months due to the acquisition in May. While there is

continuing work to reinforce our operating infrastructure given new management direction and

operational scope, post acquisition margins have compared favourably to expectations.

INTERNATIONAL RIG ACTIVITY – UTILIZATION DAYS AND PERCENTAGE

12,000

10,000

8,000

6,000

4,000

0 0

2,000

90

75

60

45

30

15

International Rig Utilization Days International Rig Utilization %

2002 2003 04Q1 04Q2 04Q3 04Q4 2004Total

Days %



2003 Compared to 2002 Contract Drilling had a very good year in 2003 as a result of a sharp rebound in

Canadian drilling activity from 2002, higher international rig activity and a moderate increase in

Canadian service rig activity. For 2003, segment revenues increased by 29% to $993 million, an

improvement of $223 million over the prior year. Operating earnings increased by 55% to $285 million,

an improvement of $101 million.

Of the $101 million improvement in operating earnings, 69% or $70 million was attributable to

Canadian drilling and service rig operations, reflecting increased equipment activity and higher pricing

due to the strength of record shallow natural gas well drilling activity. In comparison to 2002, fiscal 2003

steadily gained strength as customers increased field activity to grow production in an environment where

commodity price strength became more entrenched. The equipment activity increase generated

incremental operating earnings of $50 million.

Higher pricing in 2003 relative to 2002 provided incremental operating earnings of $20 million.

With firm global oil pricing and strong North American natural gas pricing, sustained demand for

Canadian Contract Drilling services throughout the year allowed for strong revenue rates exiting the

fourth quarter of 2003. In the Canadian market, this was in sharp contrast to 2002, where rates were low

to start the year and continued to erode during the year.

International drilling operations experienced significant expansion in 2003 as operating earnings

grew by 31% over 2002, primarily a result of higher activity. International drilling rig activity increased by

32% over 2002 to 3,990 operating days, an improvement of 975 days. Two-thirds of the additional days

occurred in the Mexico operations where additional rigs were put to work with the extension of the

Burgos integrated services project. Drilling operations ran for a full year in the Asia/Pacific region, adding

280 days to the increase in 2003 while Middle East operations commenced in the fourth quarter of 2003.

During 2003, Contract Drilling controlled capital expenditures with a focus to strengthen the

existing asset base, grow international drilling and be opportunistic to acquisitions within Canada. Capital

expenditures, including business acquisitions, totaled $106 million, representing an increase of $55

million or 108% compared to 2002. The increase is primarily attributable to asset base growth as the level

of expenditure to upgrade our existing asset base is a continual priority.

In Canada, the segment’s asset base expanded with the acquisition of two snubbing units, 19 oilfield

camps and the construction of one new generation single drilling rig, a Super Single® Light with a 1,200

metre depth rating. A second such rig commenced drilling in February 2004. Asset reductions included

the decommissioning of one drilling and one service rig, the sale of one surface hole drilling rig and one

camp, as well as the transformation of certain four unit camps into six unit configurations.

International drilling operations continued along a path of patient growth. The rig count increased

by three to exit the year at 19, with four additions and net one rig disposal. Three new rigs were built in

Canada, with one deployed to Mexico, one to the Middle East and one platform rig to the Asia/Pacific

region. The latter platform rig was of particular note as it was Precision’s first drilling rig working offshore.

The fourth rig was a retrofitted mechanical light triple deployed to Mexico from the Canadian fleet. A net

one rig ownership interest in Argentina was disposed of during the year.



energy services(Stated in thousands of Canadian dollars)


Revenue $ 874,314 $ 696,599 $ 586,180

Expenses:

Operating 614,994 70.3 514,886 73.9 457,662 78.1


Depreciation and amortization 92,477 10.6 75,174 10.8 52,991 9.0

Research & engineering 48,759 5.6 42,411 6.1 34,680 5.9

Foreign exchange 6,489 0.7 (2,276) (0.3) 2,197 0.4

Operating earnings (loss) $ 36,719 4.2 $ (3,847) (0.6) $ (40,033) (6.8)



Wireline jobs performed 45,257 17.8 38,403 24.6 30,813 (18.6)

Directional wells drilled 2,246 (24.0) 2,954 78.6 1,654 44.1

Well testing/CPD® man

days (Canada only) 56,301 5.5 53,377 8.4 49,227 (18.1)

2004 Compared to 2003 The impact of refocusing the segment’s efforts in 2003 and the development and

implementation of the product line strategies in 2004 are reflected in the current year’s results. Revenue

increased by $178 million or 26% over 2003 to $874 million, while operating earnings increased by

$41 million to $37 million. Revenue and earnings growth were driven by significant improvements in both

the Wireline and Drilling & Evaluation product lines, reflecting the acquisition of Reeves Oilfield Services

in 2004 and a significant increase in oilfield activity due to high commodity prices.

1,000 Wireline

800

600

400

200

0

Drilling & Evaluation

Production Services

Other

2002 2003 2004

REVENUE BY PRODUCT LINE ($ Millions)

500 Revenue

400

300

200

100

0

50

($ Millions) (000’s of Jobs)

40

30

20

10

0

Jobs

2002 2003 2004

WIRELINE REVENUE AND JOBS



Wireline Services

The current year results reflect an excellent year for the wireline services. Revenues generated totaled

$425 million, increasing by $126 million or 42% in 2004 over 2003. Total wireline jobs performed grew to

45,257 in 2004 from 38,403 in 2003, an increase of 18%.

Key 2004 milestones include:

n Acquisition of Reeves Oilfield Services in May for $254 million, providing additional revenues of $87 million in 2004.

n Turnaround of the U.S. operations achieved through injection of additional management and operations experience

and reorganization of the technical sales force.

n Profitability achieved in Mexico with Venezuela on track for profitability in 2005, due in part to the reduction in

political uncertainty.

n Deployment of global service delivery teams to optimize customer deliverables and field operations.

As a result of the Reeves acquisition and the U.S. turnaround, our open hole business is now not only

profitable, but is also set for future growth in 2005 and beyond. In 2004, Precision experienced increased

competition in the cased hole wireline business, where high commodity prices, low barriers to entry and

commoditization of the technology attracted new entrants into the market. Maintaining the Corporation’s

market share in the future will depend upon its ability to differentiate its services through the development

of unique “fit for purpose” tools.


Revenues for the Drilling & Evaluation product line were $271 million in 2004 compared to $223 million

2003, an increase of 21%. Total wells decreased by 24% from 2003, reflecting fewer directional wells drilled

and increased commoditization of the MWD technology in Canada, offset by increased utilization of

premium LWD/HEL™ tools and RS systems internationally. Precision’s focus in 2004 was to demonstrate

the reliability and effectiveness of these tools, resulting in increased customer acceptance as evidenced by

the growing number of wells drilled. Given the limited number of tools, although technical success has

been demonstrated, positive financial impact from these operations has been limited.


n Two successful jobs in the North Sea utilizing RSS and LWD/HEL™, proving Precision can deliver in one of the

harshest environments in the world.

n Successful qualification trials in Middle East markets.

n Significant successes in Mexico and Asia/Pacific where our service and tool performances have had a meaningful

and positive impact on our customers’ well construction performance.

n As part of our commitment to deliver “fit for purpose” tools, Energy Services developed the cost effective

Precision EMpulse™ tool which is targeted at less complex and less hostile plays. This enables redeployment of

LWD/HEL™ tools to higher margin regions that are better matched to the tools’ hostile environment capabilities.



In summary, successes with the LWD/HEL™

and RSS tools, combined with the development of

the EMpulse™ tools resulted in solid results for 2004

and the foundation for continued growth in 2005.

Production Services

Production Services generated revenues of

$97 million in 2004, on par with those earned in

2003. In the past four years, consistent with the

controlled growth strategy, Energy Services has

focused on the development of the wireline and

drilling & evaluation businesses. With the

foundation laid for these two businesses, the segment turned its attention to Production Services in the

latter half of 2004. New management with global experience in the product line was engaged and charged

to deliver and implement a strategic plan consistent with the other two Energy Services’ businesses. As part

of this plan, Production Services intends on capitalizing on its technical prowess in underbalanced drilling

applications and to pursue geographic and service diversification to establish significant contracts outside

of the Canadian market place.


n The product line signed its first early production contract in Yemen.

n A controlled pressure drilling contract was re-awarded in the North Sea through a competitive bidding process.

n Precision was awarded and completed its first offshore CPD® contract in India.

On a geographic basis, Energy Services earned a greater proportion of its revenues outside of

Canada, reflecting increased revenues from the U.S. Wireline Services and international Drilling &

Evaluation businesses.

350 LWD Jobs

280

210

140

70

0

25

(# of LWD Jobs) (# of RSS Jobs)

20

15

10

5

0

RSS Jobs

Q1 Q2 Q3 Q4

2004 LWD/RSS JOBS PER QUARTER

GEOGRAPHICAL DISTRIBUTION OF REVENUE

Canada

Rest of World

2002

38%62%

2003

44%56%

2004

35%

65%



Operational and general and administrative expenses declined as a percentage of revenue, reflecting

increased economies of scale from the growth of the operation. Depreciation and amortization increased

by 23% over 2003, primarily as a result of the commercialization of the LWD/HEL™ and RSS tools and

the acquisition of Reeves. As tool utilization rates increase in 2005 and beyond, depreciation and

amortization as a percentage of revenue is expected to decrease.

Research and engineering costs increased by $6 million over 2003 to support the ongoing

development of fit for purpose technology. Energy Services targets to spend 5% of its annual revenue to

support ongoing growth and technological innovation.

Foreign exchange losses of $7 million in the period resulted from increased activity in foreign

jurisdictions combined with a significant weakening of the US dollar. Outside of Canada, pricing of the

segment’s contracts is denominated primarily in US dollars or US dollar equivalents.

2003 Compared to 2002 As noted previously, 2003 was a year of transition for Energy Services, with new

management changing the focus of the business from top line growth and geographic expansion to

enhanced bottom line profitability. While at the end of the year the transition was not complete,

significant improvements were achieved in all product lines.


n Non-profitable product lines were shut down in many regions, enabling the segment to focus on its strengths in

regions where economies of scale will contribute to profitable operations.

n Identification of non-core businesses of Fleet Cementers, Inc. and Polar Completions for sale in 2004.

n Completion of a technology review in the third quarter, providing direction for future research and engineering work

that considers key customer needs and requirements, identifies related project parameters and sets priorities.

A critical factor that hampered the roll out of the new suite of Drilling & Evaluation tools in the first

part of 2003 was the ability of the LWD/HEL™ tool to demonstrate that it could reliably perform in many

geological environments. The fourth quarter saw a step change in the reliability of these tools, with the

mean time between failure almost quadrupling in December and continuing into 2004. With respect to the

rotary steerable tool, while several runs had been completed with over 125 hours in the hole, Precision

experienced reliability challenges of the same nature encountered with the LWD/HEL™ tools in early 2003.

For the year ended December 31, 2003, revenues totaled $697 million, an increase of 19% over the

same period in 2002, with all of the increase driven by operations in Canada, the U.S. and Mexico.

Canadian operations increased in conjunction with increased drilling activity. This higher demand for

services also resulted in generally improved pricing relative to 2002. Similarly, revenue and pricing in the

U.S. operations responded to the increase in the average rig count from 830 in 2002 to 1,030 in 2003. The

Mexico businesses benefitted from the extension of the Burgos integrated services project and the award

of additional contracts outside of that project. Combined revenue from the segment’s other regional

operations was flat year over year. Increased revenue associated with a large wireline contract in the Middle

East was offset by reduced Controlled Pressure Drilling® (CPD®) work in the North Sea. Although

improving late in the year, activity in Venezuela was also lower than 2002 as a result of the political unrest

in that country.



Profitability of the segment improved, from an operating loss of $40 million in 2002 to an operating

loss of $4 million in 2003. The effort to review and rationalize businesses in the segment brought with it

incremental expenses in the form of severance and closure costs and write-downs of unusable assets,

totaling $15 million in 2003. Operating and general and administrative expense declined as a percentage

of revenue reflecting cost reduction initiatives and economies of scale associated with certain fixed

infrastructure costs.

Research and engineering expenditures increased in 2003 as tool development programs moved

from the laboratory to field operations. During the initial stages of the roll out, product support initiatives

were performed by the research and engineering teams. With the commercialization of operations, this

work was transferred to the operations groups in 2004.

rental and production(Stated in thousands of Canadian dollars)


Revenue $ 215,492 $ 210,724 $ 192,840

Expenses:

Operating 151,323 72.5 147,911 70.2 139,781 72.5


Depreciation 13,806 6.4 12,533 6.0 13,159 6.8

Foreign exchange (4) – 292 0.2 292 0.2

Operating earnings $ 40,026 18.6 $ 39,067 18.5 $ 29,913 15.5



Equipment rental days (000’s) 838 2.2 820 (34.4) 607 (34.4)

2004 Compared to 2003 Results for the Rental and Production segment in 2004 were consistent with those

of 2003. The industrial plant maintenance business (carried out by CEDA, a wholly owned subsidiary) has

seen a shift in its revenue base to more work coming from the Fort McMurray oilsands operations. Critical

to CEDA’s work at these large facilities is its maintenance of its high safety standards and performance.

During 2004 the CEDA team received the Syncrude President’s Award for “Most Innovative

Environmental, Health and Safety Idea Implemented”. This award was based on the introduction of

Competency-Based Training, Safety Audits and the development of the SuperLance™ tool used to remove

run limiting fouling in Syncrude’s fluid cokers.

The oilfield equipment rental business saw a slight increase in activity as well as pricing

improvements on a number of product lines. This business continues to streamline its operations and

implement management information systems that are increasing its ability to manage assets and service

delivery across its organization rather than from a regional perspective.



2003 Compared to 2002 Revenue in the Rental and Production segment increased by 9% in 2003 compared

to 2002. Both the oilfield equipment rental and industrial plant maintenance operations contributed to

the increase. Equipment rental days increased in conjunction with increased drilling activity and operating

earnings in this business improved significantly as most expenses are fixed in nature.

The cornerstone of the plant maintenance operations continues to be the work performed at the

oilsands projects in northern Alberta. The segment’s ability to offer the complete suite of cleaning,

mechanical, catalyst and dredging services required to maintain these large projects, and the continued

training and development of its employees, differentiates it from its competitors. Recognition of the value

this business brings to its customers has resulted in continued steady revenue growth and consistent

operating margins.

other items

2004 Compared to 2003

Corporate and Other Expenses Corporate and other expenses have increased by $13 million or 34% in 2004

compared to 2003. These costs are primarily associated with the corporate executive, human resources,

internal audit, information technology, treasury, tax, and financial reporting functions. Expenses have

increased in conjunction with the growth of the organization and with the increased complexities

associated with Precision’s continued globalization. In addition, heightened regulatory requirements, in

particular those associated with the Sarbanes-Oxley Act, have resulted in increased personnel requirements.

Interest Expense Net interest expense of $47 million increased by 34% in 2004 compared to 2003. Average

net debt outstanding (borrowings less cash on hand) increased 9% as acquisitions made in 2004 were

partially financed by additional borrowings. The combination of the issuance of common shares and

long-term debentures to finance acquisitions and strong cash flow from operations resulted in a change in

the make up of the Corporation’s net debt outstanding. In the first half of 2004 a portion of net debt took

the form of short-term borrowings on its bank facilities at relatively low interest rates. These short-term

borrowings were replaced with long-term debentures at higher interest rates. In addition, the

Corporation’s cash balances have increased $101 million during 2004 with this cash being invested in

short-term instruments that earn a lower return than what is paid on the outstanding debentures. Interest

expense was also inflated by fees related to bridge financing facilities put in place in conjunction with

acquisitions completed during the year.

Income Taxes The Corporation’s tax rate on earnings from continuing operations before income taxes was

34% in 2004, consistent with expectations at the outset of the year. The effective tax rate in 2003 was 28%.

The increase in the tax rate is the result of a number of factors. First, the Alberta government reduced tax

rates by 0.5% in each of 2004 and 2003. Canadian GAAP requires that the effect of these rate reductions

be reflected as a decrease of future tax expense. The impact of these rate reductions on tax expense was

$2 million in 2004 and $3 million in 2003. The lower amount in 2004 combined with higher before tax

earnings resulted in a reduced impact on the Corporation’s effective tax rate in 2004 than in 2003. Second,

the Corporation’s organization structure generates tax savings which, in absolute dollar terms, are

relatively consistent from year to year. Due to the higher before tax earnings in 2004, the impact on the

effective tax rate was lower than in 2003. The Corporation’s effective tax rate is expected to be in the range

of 30-35% in 2005.



2003 Compared to 2002

Corporate and Other Expenses Expenses in the Corporate and Other segment increased by $4 million in

2003 compared to 2002. In contrast to the prior year, variable compensation payments tied to corporate

performance increased in 2003. In addition, directors’ and officers’ insurance premiums increased as a

result of increased scrutiny of corporate governance practices of public equity market participants in

North America and around the world. General and administrative expenses were also affected by the

ongoing requirements surrounding Sarbanes-Oxley legislation.

Interest Expense Net interest expense remained at approximately $35 million in 2003 and 2002. The impact

of a $24 million increase in average debt outstanding was offset by reduced interest rates. As anticipated

at the end of the prior year, interest coverage, defined as operating earnings divided by net interest

expense, returned to 2001 levels.

Income Taxes The Corporation’s effective tax rate on earnings from continuing operations before income

taxes, non-controlling interest and goodwill amortization in 2003 was 28% compared to 25% in 2002. The

Alberta government reduced tax rates by 0.5% in each of 2003 and 2002. Canadian GAAP requires that

the effect of these rate reductions be reflected as a decrease of future tax expense. The impact of these rate

reductions on tax expense was similar in 2003 and 2002 at approximately $3 million each year. However,

given the higher before tax earnings in 2003 compared to 2002, the impact of the reductions on the

Corporation’s effective tax rate was lower in 2003.

Similarly, the Corporation’s organization structure generates tax savings which, in absolute dollar

terms, are relatively consistent from year to year. Due to the higher before tax earnings in 2003, the impact

on the effective tax rate was lower than in 2002.

Liquidity and Capital Resources

Historically the oilfield services business has been very cyclical. To manage the risk of this volatility, Precision

has adhered to a philosophy of maintaining a strong balance sheet. In addition, a strong balance sheet has

allowed the Corporation to grow by providing the financial flexibility to respond to attractive investment

opportunities in the form of both acquisitions and internal growth. The following graph provides a historical

perspective on how Precision has managed its cash flows and debt levels.

In 2004, the Corporation incurred capital expenditures, net of dispositions of capital assets, of

$253 million and disposed of investments and discontinued operations for net proceeds of $58 million.

Precision also completed two significant acquisitions during the year: Reeves Oilfield Services Ltd. for cash

of $254 million and international land based drilling rigs for cash of $436 million. Total capital

INVESTMENT CASH FLOW AND CAPITALIZATION

1,000

800

600

400

0 0

200

35

28

21

14

7

Investment Equals Net Cash Flow Cost of Capital Expenditures and Business Acquisitions

Cash Flow Equals Fundsfrom Operations

Debt to Capitalization Equals the Ratio of Long-term Debt to Long-term Debt Plus Equity

2000 2001 2002 2003 2004

$ Millions %



expenditures and investments for the year, net of dispositions, was $875 million. These investments were

financed by a combination of cash flow from operations, an equity issue and a long-term debt issue. Cash

flow from operations contributed $445 million during the year, while the equity issue in August 2004 netted

$276 million and the debt issue provided US$300 million in May 2004. In addition, the Corporation realized

$55 million from the exercise of stock options. The net cash generated by these activities was more than

sufficient to finance the capital expenditures and acquisitions, resulting in the repayment of $214 million

of bank debt and long-term debt that was outstanding at December 31, 2003 and an increase in cash and

cash equivalents by $101 million.

The Corporation exited 2004 with a long-term debt to long-term debt plus equity ratio of 24% and

a ratio of long-term debt to cash flow from operations of 161%. The long-term debt to long-term debt

plus equity ratio at December 31, 2004 was well within the Corporation’s target ratio of 30%, although

this ratio was exceeded at June 30, 2004 with a ratio of 33% as a result of the acquisition of Reeves and the

international land drilling rigs. This ratio was reduced to 24% by year-end with the completion of the

aforementioned equity issue in July 2004. The Corporation has in the past, and may in the future, exceed

its 30% target ratio on a temporary basis to finance an acquisition. However, the objective is to reduce the

ratio to below the target within 12-18 months of an acquisition through cash flow or the raising of

additional equity.

In 2005, the Corporation expects cash flow from operations to exceed $550 million and net capital

expenditures to amount to approximately $350 million. The Corporation also expects proceeds from

exercising of stock options to be approximately $25 million. The Corporation currently has three long-term

note issuances outstanding, totaling $719 million with maturities of $200 million in 2007, $150 million in

2010 and $369 million in 2014. All of the long-term debt has an option for early redemption; however, there

would be a substantial penalty payable if redeemed prior to maturity. As there is no short-term bank debt

outstanding to be repaid, it is expected that the excess cash flow generated will continue to accumulate in

cash and short-term investments, assuming no material acquisitions. Given the forecasted cash flow for

2005 and the full year of income from Reeves and the land-based international drilling rigs and barring any

material acquisitions, it is expected that the long-term debt to long-term debt plus equity ratio and the ratio

of long-term debt to trailing cash flow will improve in 2005 over year-end 2004 figures.

Precision has a number of committed and uncommitted lines of credit available to finance its

activities. The committed facilities consist of a $335 million three-year revolving unsecured credit facility

with a syndicate led by a Canadian chartered bank. The facility currently matures in August 2007, but is

extendible annually with consent of the lenders. The Corporation also has a US$50 million extendible

revolving facility with Export Development Corporation, which is available for financing international

projects and acquisitions. This facility has a one-year revolving period expiring December 2005, followed

by a one-year term period should the revolving period not be extended. Both committed facilities have

similar covenants and events of default that are the market norm for companies the size and credit quality

of Precision. The facilities also have two financial covenants which are tested quarterly: total liabilities to

equity of less than 1:1 and total debt to the trailing four quarters cash flow of less than 2.75:1. As at

December 31, 2004, Precision was well within the financial covenant levels, and is expected to remain so

for 2005. There were no borrowings outstanding under either of the committed facilities at December 31,

2004. In addition to the committed bank facilities, Precision also has a number of uncommitted operating

facilities worldwide which total approximately $100 million equivalent and are utilized for working capital

management and issuance of letters of credit.



The Corporation’s contractual obligations are outlined in the following table:

(Stated in thousands of Canadian dollars) Payments Due by Period

Less Than AfterTotal 1 Year 1 – 3 Years 4 – 5 Years 5 Years

Long-term debt $ 718,850 $ – $ 200,000 $ – $518,850

Capital lease obligations 38 18 20 – –

Operating leases 101,100 32,155 48,664 9,516 10,765

Total contractual obligations $ 819,988 $ 32,173 $ 248,684 $ 9,516 $529,615

outstanding share dataFebruary 28 December 31

2005 2004 2003

Common shares 61,297,003 60,790,212 54,845,678

Options to purchase common shares 3,047,269 3,347,560 3,393,194

Quarterly Financial Summary(Stated in thousands of dollars except per share amounts, which are presented on a diluted basis)Year ended December 31, 2004 Q1 Q2 Q3 Q4 Year

Revenue 659,365 416,317 570,047 679,487 2,325,216

Operating earnings 169,631 29,037 77,074 148,711 424,453

Earnings from continuing operations 106,082 15,982 41,034 86,489 249,587

Per share 1.88 0.28 0.68 1.40 4.26

Net earnings 100,519 15,995 42,707 88,183 247,404

Per share 1.79 0.28 0.71 1.43 4.22

Funds provided by continuing operations 178,186 38,947 103,095 174,750 494,978

Year ended December 31, 2003 Q1 Q2 Q3 Q4 Year

Revenue 583,313 342,246 450,942 523,646 1,900,147

Operating earnings 117,033 12,314 60,958 91,173 281,478

Earnings from continuing operations 73,525 8,489 36,455 61,434 179,903

Per share 1.33 0.15 0.66 1.11 3.25

Net earnings 83,129 8,622 35,765 52,958 180,474

Per share 1.51 0.16 0.65 0.95 3.26

Funds provided by continuing operations 131,406 21,215 91,764 108,252 352,637

fourth quarter discussion

Sustained high crude oil and natural gas prices generated a strong environment for the oilfield services

business both in Canada and internationally in the fourth quarter. In addition, the acquisition of 31

internationally based drilling rigs and of Reeves Oilfield Services Ltd. in the second quarter of 2004

contributed significantly to the year over year improvement in fourth quarter earnings.

Contract Drilling revenue of $378 million and operating earnings of $138 million increased by 30%

and 39% respectively in the fourth quarter of 2004 compared to the same period of 2003. The

international drilling operation performed above expectations and contributed revenue of $74 million in

the fourth quarter compared to $37 million in 2003.

The Canadian drilling and service rig operations saw activity levels increase 4% and 13% respectively.

The Canadian drilling rig fleet achieved 12,099 operating days in the fourth quarter of 2004 and the service

rig fleet generated 127,694 operating hours, with activity levels being supported by continued favourable



commodity prices and good weather conditions. Strong demand resulted in winter pricing being maintained

throughout the summer and allowed for rate increases to be implemented for the 2004/2005 winter drilling

season. Drilling revenue per operating day increased by 8% and service revenue per hour increased by 14%.

Precision’s international rig fleet numbered 48 at the end of 2004 compared to 19 at the end of 2003,

with one rig sold and one rig relocated to Canada. The Corporation has greatly enhanced its presence in the

eastern hemisphere with 28 rigs located in the region. Demand for rigs, especially in the Middle East, is on

the rise and as a result recent contract awards have been for increased day rates. Venezuela, where we have

11 rigs, is also starting to see improved activity levels. Activity for the 10 rigs located in Mexico have been

dampened somewhat by Pemex budget restrictions, however Precision has recently been awarded an

extension of its integrated services contract that will maintain utilization at approximately 70% into 2006.

We will also be participating in the bidding on drilling projects for other international operators in Mexico.

Energy Services revenue increased by $62 million or 34% in the fourth quarter of 2004 compared to

2003. Operating earnings increased by $19 million over the same period. The strengthening Canadian

dollar resulted in foreign exchange losses of $3 million in the current quarter compared to a negligible gain

in the fourth quarter of 2003.

The acquisition of Reeves Oilfield Services Ltd. in May accounted for half of the fourth quarter year

over year revenue increase. As well, revenue for non-Reeves operations increased in all regions. Of

particular note is the 123% revenue increase in Asia/Pacific and the 70% revenue increase in Latin

America. In the Asia/Pacific region, we have seen growth in all our product lines in India and Bangladesh

and operations in Indonesia have returned to profitability. The improvement in Latin America is due to a

gradual increase in activity in Venezuela as that country pushes to get production levels back to what they

were prior to the general strike. Revenue generated in the United States also increased by 23% as a result

of increased land drilling activity spurred by sustained high commodity prices.

An important milestone was achieved in the Middle East market in the fourth quarter with the

completion of field trials and qualification to perform logging-while-drilling and rotary steerable work in

the region. We plan to leverage this technological success and Precision’s increased presence in the region

to expand Energy Services’ business across all its product lines.

The Rental and Production segment saw a 14% increase in revenue and a 50% increase in operating

earnings in the fourth quarter of 2004 compared to 2003. The plant maintenance business had a strong

quarter with additional work coming from unplanned refinery shutdowns and from extensions of

projects at the oilsands plants longer into the Christmas season than was usual. The rental operation also

saw increased revenue due to increased pricing on select product lines as a result of continued strong

demand for equipment.

Accounting Changes – Stock-based Compensation Plans

Effective January 1, 2004, the Corporation adopted the revised Canadian accounting standards with respect

to accounting for stock-based compensation. Under the new standard, the fair value of common share

purchase options is calculated at the date of the grant and that value is recorded as compensation expense

over the vesting period of those grants. Under the previous standard, no compensation expense was recorded

when stock options were issued with any consideration received upon exercise credited to share capital.

The Corporation has retroactively applied this standard, with restatement of prior years, to all

common share purchase options granted since January 1, 2002. This has resulted in a charge to net

earnings for the year ended December 31, 2004 of $14 million (2003 – $8 million; 2002 – $6 million) or

$0.22 diluted earnings per share (2003 – $0.15; 2002 – $0.11) and a reduction to opening retained earnings

of $15 million at January 1, 2004 ($6 million at January 1, 2003).



Critical Accounting Estimates

This Management’s Discussion and Analysis of Precision’s financial condition and results of operations is

based on its consolidated financial statements which are prepared in accordance with Canadian generally

accepted accounting principles. The Corporation’s significant accounting policies are described in Note 1

to its consolidated financial statements. The preparation of these financial statements requires that certain

estimates and judgments be made that affect the reported assets, liabilities, revenues and expenses. These

estimates and judgments are based on historical experience and on various other assumptions that are

believed to be reasonable under the circumstances. Anticipating future events cannot be done with

certainty, therefore these estimates may change as new events occur, more experience is acquired and as

the Corporation’s operating environment changes.

The accounting estimates believed to require the most difficult, subjective or complex judgments and

which are the most critical to our reporting of results of operations and financial position are as follows:

allowance for doubtful accounts receivable

The Corporation performs ongoing credit evaluations of our customers and grants credit based upon past

payment history, financial condition and anticipated industry conditions. Customer payments are

regularly monitored and a provision for doubtful accounts is established based upon specific situations

and overall industry conditions. The Corporation’s history of bad debt losses has been within expectations

and generally limited to specific customer circumstances, however, given the cyclical nature of the oil and

gas industry and the inherent risk of successfully finding hydrocarbon reserves, a customer’s ability to

fulfill its payment obligations can change suddenly and without notice. In addition, many of our

customers are located in international areas that are inherently subject to risks of economic, political and

civil instabilities, which may impact our ability to collect those accounts receivable.

excess and obsolete inventory provisions

Quantities of inventory on hand are regularly reviewed and provisions for excess or obsolete inventory are

established based on historical usage patterns and known changes to equipment or processes that would

render specific items no longer usable in operations. Significant or unanticipated changes in business

conditions could impact the amount and timing of any additional provision for excess or obsolete

inventory that may be required. The Energy Services segment of our operations involves the application

of new technologies in its efforts to deliver superior products to our customers and therefore has a greater

risk of obsolescence due to finding or developing better products. The Energy Services inventories

comprise 81% of our total inventory of $114 million. These inventories are reviewed on a quarterly basis

to assess the appropriateness of quantities and valuation.

impairment of long-lived assets

Long-lived assets, which includes property, plant and equipment, intangibles and goodwill, comprise the

majority of the Corporation’s assets. The carrying value of these assets is periodically reviewed for

impairment or whenever events or changes in circumstances indicate that their carrying amounts may not

be recoverable. This requires the Corporation to forecast future cash flows to be derived from the

utilization of these assets based upon assumptions about future business conditions and technological

developments. Significant, unanticipated changes to these assumptions could require a provision for

impairment in the future. During the fourth quarter of 2004 the Corporation completed its goodwill

assessment incorporating the work of independent valuation experts resulting in the conclusion that there

was no impairment of the carrying value.



depreciation and amortization

The Corporation’s property, plant and equipment and its intangible assets are depreciated and amortized

based upon estimates of useful lives and salvage values. These estimates may change as more experience is

gained, market conditions shift or new technological advancements are made. The high depreciation

expense associated with the Energy Services segment is anticipated to improve with the optimization of

equipment fleet sizes in each geographic region.

As a result of the recent completion of a review of the useful lives of our drilling rigs and related

equipment, Precision will be changing the useful life of its drilling rigs for the purposes of determining

depreciation expense to 5,000 utilization days from 4,150 utilization days or as previously stated, 3,650

operating days, and its drill string to 1,500 from 1,100 operating days. Utilization days include both

operating and rig move days. This change in accounting estimate will be applied prospectively beginning

January 1, 2005.

income taxes

The Corporation uses the liability method which takes into account the differences between financial

statement treatment and tax treatment of certain transactions, assets and liabilities. Future tax assets and

liabilities are recognized for the future tax consequences attributable to differences between the financial

statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation

allowances are established to reduce future tax assets when it is more likely than not that some portion or

all of the asset will not be realized. Estimates of future taxable income and the continuation of ongoing

prudent tax planning arrangements have been considered in assessing the utilization of available tax

losses. Changes in circumstances and assumptions and clarifications of uncertain tax regimes may require

changes to the valuation allowances associated with the Corporation’s future tax assets.

Business Risks

crude oil and natural gas prices

The price received by our customers for the crude oil and natural gas they produce has a direct impact on

cash flow available for them to finance the acquisition of services provided by the Corporation.

Prices for crude oil are established in a worldwide market in which supply and demand are subject

to a vast array of economic and political influences. This results in very volatile pricing; a prime example

of which is West Texas Intermediate crude oil trading at US$12 per barrel in late 1998 and in excess of

US$55 per barrel at one point in 2004. Natural gas prices are established in a more “local” North American

market due to the requirement to transport this gaseous product in pressurized pipelines, although this is

changing slowly with the emergence of LNG. Demand for natural gas is seasonal and is correlated to

heating and electricity generation requirements. Demand for natural gas and fuel oils is also affected by

consumers’ ability to switch from one to the other to take advantage of relative price variations.

The Corporation partially manages the risk of volatile commodity prices, and thus volatile demand

for its services, by striving to maintain cost structures that are scalable to activity levels. However, cost

structures in Contract Drilling are more variable in nature than those within Energy Services. In addition,

our strong balance sheet and adherence to conservative financing practices provide the resilience to

withstand and benefit from downturns and upturns in the business cycle.

North American oilfield service activity is largely focused on natural gas. One objective of the

Corporation’s international growth initiatives is to increase our exposure to crude oil activity in less

cyclical markets.



workforce availability

The Corporation’s ability to provide reliable services is dependent upon the availability of well trained,

experienced crews to operate our field equipment. We must also balance the requirement to maintain a

skilled workforce with the need to establish cost structures that vary as much as possible with activity levels.

Within Contract Drilling, our most experienced people are retained during periods of low utilization

by having them fill lower level positions on our field crews. The Corporation has established training

programs for employees new to the oilfield service sector and Precision works closely with industry

associations to ensure competitive compensation levels and to attract new workers to the industry as required.

Many of our Canadian businesses are currently experiencing manpower shortages. Over 50 drilling

rigs have been running without relief crews, requiring them to shut down when crews need time off.

Energy Services Canadian operations have been supported by additional people and equipment brought

in from other regional operations to meet peak winter demand.

weather

The ability to move heavy equipment in the Canadian oil and natural gas fields is dependent on weather

conditions. As warm weather returns in the spring, the winter’s frost comes out of the ground rendering

many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly

dried out. The duration of this “spring breakup” has a direct impact on the Corporation’s activity levels.

In addition, many exploration and production areas in northern Canada are accessible only in winter

months when the ground is frozen hard enough to support equipment. The timing of freeze up and spring

breakup affects the ability to move equipment in and out of these areas.

Working with customers, the Corporation strives to position equipment where possible such that it can

be working on location during spring breakup, limiting the need to move equipment during this time period

as much as possible. However, many uncontrollable factors affect our ability to plan in this fashion and the

spring season, which can occur any time from late March through May, is traditionally our slowest time.

technology

Technological innovation by oilfield service companies has improved the effectiveness of the entire

exploration and production sector over the industry’s 140-year history. Recently, development of

directional and horizontal drilling, underbalanced drilling, coiled tubing drilling, and methods of

providing real time data during drilling and production operations have increased production volumes and

the recoverable amount of discovered reserves. Innovations such as 3-D and 4-D seismic have improved the

success rate of exploration wells partially offsetting the decline in the quantity of drillable prospects.

Our ability to deliver more efficient services is critical to our continued success. The Corporation

has continuously built upon its experience and teamed with customers to provide solutions to their

unique problems. Our ability to design and build specialized equipment has kept us on the leading edge

of technology. The success of our in-house designed and built Super Single® and Super Single® light rigs,

both in Canada and abroad, is testimony of our dedication to these efforts.

The continued development of our Energy Services segment, puts the Corporation at another level

where high-end technological innovation is paramount to success. We have a team of highly qualified

experienced professionals that has been assembled and working together for a number of years in state of

the art testing facilities. The technologies the Corporation has developed over this time are at the

commercial deployment stage, however, the success of future technological endeavors is never certain.



acquisition integration

The Corporation has worked towards its strategic objective of becoming an integrated service provider of

sufficient size to benefit from economies of scale and to provide the foundation from which to pursue

international opportunities. Business acquisitions have been an important tool in this pursuit and will

continue to be so in the future. Continued successful integration of new businesses, people and systems is

key to our future success.

foreign operations

Precision is working hard to export its expertise and technologies to oil and gas producing regions around

the world. With this comes the risk of dealing with business and political systems that are much different

than the Corporation is accustomed to in North America. The Corporation has hired employees who have

experience working in the international arena and it is committed to recruiting qualified resident

nationals on the staffs of all of its international operations.

merger and acquisition activity

Merger and acquisition activity in the oil and gas exploration and production sector can impact demand

for our services as customers focus on internal reorganization activities prior to committing funds to

significant drilling and maintenance projects.

foreign exchange exposure

The Corporation’s international operations have revenues, expenses, assets and liabilities in currencies

other than the Canadian dollar. Although the Corporation has exposure to more than 25 international

currencies, the only material exposure is to the U.S. dollar and currencies which are pegged to the U.S.

dollar. The Corporation’s income statement, balance sheet and statement of cash flow are impacted by

changes in foreign exchange rates in three main aspects.

(A) Translation of Foreign Currency Assets and Liabilities to Canadian Dollar

Some of the Corporation’s international operations are considered self sustaining, while others are considered

integrated, as described in Note 1 (m) of the financial statements. For self sustaining operations, assets and

liabilities are translated into Canadian dollars using the exchange rate in effect at the balance sheet dates. Any

unrealized translation gains and losses are deferred and included in a separate component of shareholders’

equity called “cumulative translation adjustment”. These cumulative currency translation adjustments are

recognized into income when there has been a reduction in the net investment of the foreign operations.

For integrated operations, non-monetary assets and liabilities are recorded in the financial

statements at the exchange rate in effect at the time of the acquisition or expenditure. As a result, the book

value of these assets and liabilities are not impacted by changes in exchange rates. Monetary assets and

liabilities are converted at the exchange rate in effect at the balance sheet dates, and the unrealized gains

and losses are shown on the income statement as “Foreign exchange”. The Corporation has a net monetary

asset position for its international operations, which are predominantly U.S. dollar based. As a result, if the

Canadian dollar strengthens versus the U.S. dollar during a quarter, the Corporation will incur a foreign

exchange loss from the translation of net monetary assets of integrated operations.

The Corporation has hedged a significant portion of its net asset position of its self-sustaining

international operation by issuing US$300 million in long-term notes and designating it as a hedge. Gains

or losses resulting from the translation of these notes at period end exchange rates are included in the

cumulative translation adjustment account. The Corporation continually evaluates its remaining net

foreign currency asset position and the appropriateness of hedging that position but does not currently

hedge any of the exposure.



(B) Translation of Foreign Currency Income Statement Items to Canadian Dollar

The Corporation’s international operations generate revenue and incur expenses in currencies other than

the Canadian dollar. As described in Note 1 (m) to the financial statements, the foreign currency based

earnings are converted into Canadian dollars for purposes of financial statement consolidation. The

conversion of the Corporation’s international revenue and expenses to a Canadian dollar basis does not

result in a foreign exchange gain or loss as with the translation of assets described above. It does, however,

result in lower or higher net profit from international operations than would have occurred had the foreign

exchange rate not changed. If the Canadian dollar strengthens versus the U.S. dollar during a quarter, the

Canadian dollar equivalent of international net profit and cash flow will be negatively impacted.

The Corporation does not currently hedge any of its exposure related to the translation of foreign

currency based earnings into Canadian dollars.

(C) Transaction Exposure

The majority of the Corporation’s international operations are transacted in U.S. dollars or U.S. dollar

pegged currencies, although in most countries in which the Corporation operates there will be a certain

amount of local currency expenditures. The U.S. dollar net income for international operations will not

be impacted by a change in the U.S./Canadian exchange rate. The international U.S. dollar net income will

be impacted, however, by a change in the U.S. dollar exchange rate vis-à-vis local currencies in which the

Corporation has revenues or expenses. As with the conversion of the Corporation’s foreign currency

revenue and expenses to a Canadian dollar basis, this transaction exposure does not result in a foreign

exchange gain or loss as with the translation of foreign currency assets described above. It does, however,

result in lower or higher net income from international operations than would have occurred had foreign

exchange rates not changed.

It is the Corporation’s intent to minimize the impact of currencies other than the U.S. dollar on the

results of international operations. The main method of reducing this exposure is through the structure

of international contracts whereby the Corporation will attempt to structure a portion of the revenue

stream in local currency to offset the expected local currency expenses, with the balance of revenue paid

in U.S. dollars. The Corporation may also enter into foreign exchange derivative contracts to manage

residual mismatches in foreign currency cash flows, although, there are no outstanding contracts at

December 31, 2004.

(D) Sensitivities

Based on the Corporation’s current operations, the following is an estimate of the Corporation’s full year

exposure to a 5% strengthening of the Canadian dollar against the U.S. dollar (i.e. for a full year relative

to the December 2004 month end rate). The sensitivity is based on current level of operations and the

structure of our international contracts, as well as the level of monetary assets at the end of 2004. All of

these factors are subject to change during the year, which would impact the Corporation’s sensitivity to

changes in the Canadian/U.S. exchange rate.

Item Impact Amount

Revenue Decrease $51 million

Earnings before foreign exchange rate impact on

foreign currency assets Decrease $10 million

Foreign exchange loss on foreign currency assets Increase $6 million



Disclosure Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of Precision’s

disclosure controls and procedures as of December 31, 2004 and have concluded that such disclosure

controls and procedures were effective to provide reasonable assurance that material information relating

to the Corporation or its subsidiaries is made known to them.

Outlook

Macro energy fundamentals remain positive as worldwide energy demand continues to be firm, supported

to a large extent by the growing economies of China and India. OPEC has remained disciplined and

rational with respect to managing the supply dynamics for oil and worldwide production capacity is

challenged to meet growing needs. Natural gas fundamentals are also strong in the face of healthy

industrial demand and ongoing production challenges. These factors, which analysts are predicting will

not change in the foreseeable future, have lead to the sustainment of historically high crude oil and natural

gas prices. As a result, the financial capabilities of our customers have been greatly strengthened over the

past year and the returns they are generating are compelling them to increase their exploration and

development spending.

With these fundamentals as the backdrop, Precision anticipates the demand for its products and

services to be very strong in 2005 and into 2006. The Canadian Association of Oilwell Drilling Contractors

is forecasting over 24,000 wells to be drilled in Canada in 2005, an all time high, and we are also expecting

increased overall international activity. The biggest challenge we face in filling the increased demand for

our services is attracting employees with sufficient expertise and training. We will increasingly focus on

recruiting, training and retaining people so that we can continue to respond to our customers needs.

Precision has remained true to its conservative financial principles, maintaining a strong balance

sheet to support the pursuit of further growth opportunities.



MANAGEMENT’S REPORT TO THE SHAREHOLDERS

The accompanying consolidated financial statements and all information in the Annual Report are the

responsibility of management. The consolidated financial statements have been prepared by management

in accordance with the accounting policies in the notes to financial statements. When necessary,

management has made informed judgments and estimates in accounting for transactions which were not

complete at the balance sheet date. In the opinion of management, the financial statements have been

prepared within acceptable limits of materiality, and are in accordance with Canadian generally accepted

accounting principles (GAAP) appropriate in the circumstances. The financial information elsewhere in the

Annual Report has been reviewed to ensure consistency with that in the consolidated financial statements.

Management has prepared Management’s Discussion and Analysis (MD&A). The MD&A is based

upon the Corporation’s financial results prepared in accordance with Canadian GAAP. The MD&A

compares the audited financial results for the years ended December 31, 2004 to December 31, 2003 and

the years ended December 31, 2003 to December 31, 2002. Note 15 to the consolidated financial

statements describes the impact on the consolidated financial statements of significant difference between

Canadian and United States GAAP.

Management maintains an appropriate system of internal control designed to give reasonable

assurance that transactions are properly authorized, assets are safeguarded and financial records properly

maintained to provide reliable information for the preparation of financial statements.

KPMG LLP, an independent firm of Chartered Accountants, was engaged, as approved by a vote of

shareholders at the Corporation’s most recent annual general and special meeting, to audit the

consolidated financial statements in accordance with generally accepted auditing standards in Canada and

provide an independent professional opinion.

The Audit Committee of the Board of Directors, which is comprised of three independent directors

who are not employees of the Corporation, provides oversight to the financial reporting process. Integral

to this process is the Audit Committee’s review and discussion with management and the external auditors

of the quarterly and annual financial statements and reports prior to their respective release. The Audit

Committee is also responsible for reviewing and discussing with management and the external auditors

major issues as to the adequacy of the Corporation’s internal controls. The consolidated financial

statements have been approved by the Board of Directors on the recommendation of the Audit Committee.

HANK B. SWARTOUT DALE E. TREMBLAY

Chairman of the Board, President Senior Vice President Finance

and Chief Executive Officer and Chief Financial Officer

February 8, 2005


auditors’ report to the shareholders 85

AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Precision Drilling Corporation as at December 31, 2004

and 2003 and the consolidated statements of earnings and retained earnings and cash flow for each of the

years in the three-year period ended December 31, 2004. These consolidated financial statements are the

responsibility of the Corporation’s management. Our responsibility is to express an opinion on these

consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those

standards require that we plan and perform an audit to obtain reasonable assurance whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the

overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the

financial position of the Corporation as at December 31, 2004 and 2003 and the results of its operations

and its cash flow for each of the years in the three-year period ended December 31, 2004 in accordance

with Canadian generally accepted accounting principles.

CHARTERED ACCOUNTANTS

Calgary, Canada

February 8, 2005



CONSOLIDATED BALANCE SHEETS

(Stated in thousands of dollars)As at December 31, 2004 2003

(restated – Note 2)

AssetsCurrent assets:

Cash and cash equivalents $ 122,012 $ 21,370Accounts receivable (Note 18) 690,999 539,370Inventory 114,352 95,210Future income tax asset (Note 11) 8,711 1,524Assets of discontinued operations (Note 20) – 30,508

936,074 687,982Property, plant and equipment, net of accumulated depreciation (Note 3) 1,945,521 1,584,954Intangibles, net of accumulated amortization of 29,869 (2003 – $19,844) 191,665 65,262Goodwill (Note 4) 735,413 527,443Other assets (Note 5) 9,116 8,932Future income tax asset (Note 11) 32,984 28,699Assets of discontinued operations (Note 20) – 35,336

$ 3,850,773 $ 2,938,608

Liabilities and Shareholders’ EquityCurrent liabilities:

Bank indebtedness (Note 6) $ – $ 147,909Accounts payable and accrued liabilities (Note 18) 340,372 258,803Incomes taxes payable 31,103 7,136Current portion of long-term debt (Note 7) 18 17,158Future income tax liability (Note 11) 7,270 791Liabilities of discontinued operations (Note 20) – 7,191

378,763 438,988Long-term debt (Note 7) 718,870 399,422Future income tax liability (Note 11) 431,399 350,031Future income taxes of discontinued operations (Note 20) – 1,107Non-controlling interest – 3,771Shareholders’ equity:

Share capital (Note 8) 1,274,967 936,744Contributed surplus (Note 8) 26,024 14,266Cumulative translation adjustment (Note 17) (20,933) –Retained earnings 1,041,683 794,279

2,321,741 1,745,289Commitments and contingencies (Notes 10 and 19)

$ 3,850,773 $ 2,938,608

See accompanying notes to consolidated financial statements.

Approved by the Board:

HANK B. SWARTOUT PATRICK M. MURRAY

Director Director


financial reporting 87

CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS

(Stated in thousands of dollars, except per share amounts)Years ended December 31, 2004 2003 2002

(Restated – Note 2) (Restated – Note 2)

Revenue $ 2,325,216 $ 1,900,147 $ 1,550,598

Expenses:

Operating 1,471,228 1,265,215 1,088,876

General and administrative 173,673 143,322 147,303

Depreciation and amortization 203,829 170,384 133,028

Research and engineering 48,759 42,411 34,680

Foreign exchange 3,274 (2,663) 4,357

1,900,763 1,618,669 1,408,244

Operating earnings 424,453 281,478 142,354

Interest:

Long-term debt 46,963 34,492 34,378

Other 855 1,425 1,334

Income (909) (867) (589)

Dividend income – – (39)


Earnings from continuing operations before income

taxes and non-controlling interest 382,443 249,783 108,170

Income taxes: (Note 11)

Current 100,256 57,029 61,019

Future 31,302 12,851 (34,072)

131,558 69,880 26,947

Earnings from continuing operations

before non-controlling interest 250,885 179,903 81,223


Earnings from continuing operations 249,587 179,903 81,223

Gain (loss) on disposal of discontinued operations (Note 20) (616) 17,460 –

Discontinued operations, net of tax (Note 20) (1,567) (16,889) 3,763

Net earnings 247,404 180,474 84,986

Retained earnings, beginning of year (Note 2) 794,279 613,805 528,819

Retained earnings, end of year $ 1,041,683 $ 794,279 $ 613,805

Earnings per share from continuing operations: (Note 12)

Basic $ 4.32 $ 3.31 $ 1.51

Diluted $ 4.26 $ 3.25 $ 1.48

Earnings per share: (Note 12)

Basic $ 4.28 $ 3.32 $ 1.58

Diluted $ 4.22 $ 3.26 $ 1.55




CONSOLIDATED STATEMENTS OF CASH FLOW

(Stated in thousands of dollars)Years ended December 31, 2004 2003 2002

(Restated – Note 2) (Restated – Note 2)

Cash provided by (used in):

Continuing operations:

Earnings from continuing operations $ 249,587 $ 179,903 $ 81,223

Items not affecting cash:


Stock-based compensation 13,837 8,001 6,174

Future income taxes 31,302 12,851 (34,072)


Amortization of deferred financing costs 1,579 1,286 1,294

Unrealized foreign exchange gain

on long-term monetary items (1,555) (16,433) (2,039)


Funds provided by continuing operations 494,978 352,637 184,708

Changes in non-cash working

capital balances (Note 18) (50,178) (99,664) 3,715

444,800 252,973 188,423

Discontinued operations (Note 20):

Funds provided by (used in) discontinued operations 3,689 (309) 10,512

Changes in non-cash working capital

balances of discontinued operations (447) 5,763 288

3,242 5,454 10,800

Investments:

Business acquisitions, net of cash acquired (Note 14) (679,814) (6,800) (4,594)

Purchase of property, plant and equipment (282,224) (314,921) (267,794)

Purchase of intangibles (320) (6) (4,198)

Proceeds on sale of property, plant and equipment 29,940 24,423 32,449

Proceeds on disposal of investments 8,665 10,966 1,872

Investments (90) (1,080) (5,672)

Proceeds on disposal of discontinued operations 49,299 67,274 –

(874,544) (220,144) (247,937)

Financing:

Increase in long-term debt 522,136 85,228 119,380

Repayment of long-term debt (173,260) (145,657) (102,275)

Deferred financing costs on long-term debt (5,612) – –

Issuance of common shares, net of costs 276,428 – –

Issuance of common shares on exercise of options 55,361 23,613 25,756

Change in bank indebtedness (147,909) 2,588 9,937

527,144 (34,228) 52,798

Increase in cash and cash equivalents 100,642 4,055 4,084

Cash and cash equivalents, beginning of year 21,370 17,315 13,231

Cash and cash equivalents, end of year $ 122,012 $ 21,370 $ 17,315




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts stated in thousands of dollars except per share amounts)

Precision Drilling Corporation (the “Corporation”) is a global oilfield services company providing a broad

range of drilling, production and evaluation services.

The financial statements are prepared in accordance with generally accepted accounting principles

(GAAP) in Canada. Management is required to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the

financial statements and the reported amounts of revenues and expenses during the periods. Actual results

could differ from these estimates.

1. Significant Accounting Policies:

(a) principles of consolidation

The consolidated financial statements include the accounts of the Corporation and its subsidiaries,

all of which are wholly-owned at December 31, 2004. In 2004, the Corporation disposed of its one partially

owned subsidiary.

(b) cash and cash equivalents

Cash and cash equivalents consist of cash and short term investments with maturities of three

months or less.

(c) inventory

Inventory is primarily comprised of operating supplies and spare parts and is carried at the lower of

average cost and replacement cost.

(d) property, plant and equipment

Property, plant and equipment are carried at cost, including costs of direct material, labour, and

indirect overhead for manufacturing items. Where costs are incurred to extend the useful life of property,

plant and equipment or to increase its capabilities, the amounts are capitalized to the related asset. Costs

incurred to repair or maintain property, plant and equipment are expensed as incurred.

Drilling rig equipment is depreciated by the unit-of-production method based on 3,650 drilling days

with a 20% salvage value. Drill pipe and drill collars are depreciated over 1,100 drilling days and have no

salvage value. Service rig equipment is depreciated by the unit-of-production method based on 24,000 hours

for single and double rigs and 48,000 hours for heavy double rigs. Service rigs have a 20% salvage value.

Field technical equipment is depreciated by the straight-line method over periods ranging from

2 to 10 years.

Rental equipment is depreciated by the straight-line method over periods ranging from 10 to 15

years. Other equipment is depreciated by the straight-line method over periods ranging from 3 to 10 years.

Light duty vehicles are depreciated by the straight-line method over 4 years. Heavy duty vehicles are

depreciated by the straight-line method over periods ranging from 7 to 10 years.

Buildings are depreciated by the straight-line method over periods ranging from 10 to 30 years.

(e) intangibles

Intangibles, which are comprised of acquired technology and customer relationships, are recorded

at cost and amortized by the straight-line method over their useful lives ranging from 5 to 20 years.



(f) goodwill

Goodwill is the amount that results when the purchase price of an acquired business exceeds the

sum of the amounts allocated to the assets acquired, less liabilities assumed, based on their fair values.

Goodwill is allocated as of the date of the business combination to the Corporation’s reporting segments

that are expected to benefit from the business combination.

Goodwill is not amortized and is tested for impairment annually in the fourth quarter, or more

frequently if events or changes in circumstances indicate that the asset might be impaired. The

impairment test is carried out in two steps. In the first step, the carrying amount of the reporting segment

is compared with its fair value. When the fair value of a reporting segment exceeds its carrying amount,

goodwill of the reporting segment is considered not to be impaired and the second step of the impairment

test is unnecessary. The second step is carried out when the carrying amount of a reporting segment

exceeds its fair value, in which case the implied fair value of the reporting segment’s goodwill is compared

with its carrying amount to measure the amount of the impairment loss, if any. The implied fair value of

goodwill is determined in the same manner as the value of goodwill is determined in a business

combination described in the preceding paragraph, using the fair value of the reporting segment as if it

was the purchase price. When the carrying amount of reporting a segment’s goodwill exceeds the implied

fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

(g) long lived assets

On a periodic basis, management assesses the carrying value of long lived assets for indications of

impairment. Indications of impairment include items such as an ongoing lack of profitability and

significant changes in technology. When an indication of impairment is present, the Corporation tests for

impairment by comparing the carrying value of the asset to its net recoverable amount. If the carrying

amount is greater than the net recoverable amount, the asset is written down to its estimated fair value.

(h) investments

Investments in shares of associated companies, over which the Corporation has significant

influence, are accounted for by the equity method. Other investments are carried at cost. If there are other

than temporary declines in value, these investments are written down to their net realizable value.

(i) deferred financing costs

Costs associated with the issuance of long-term debt are deferred and amortized by the straight-line

method over the term of the debt. The amortization is included in interest expense.

(j) income taxes

The Corporation follows the liability method of accounting for future income taxes. Under the

liability method, future income tax assets and liabilities are determined based on “temporary differences”

(differences between the accounting basis and the tax basis of the assets and liabilities), and are measured

using the currently enacted, or substantively enacted, tax rates and laws expected to apply when these

differences reverse. Income tax expense is the sum of the Corporation’s provision for current income taxes

and the difference between opening and ending balances of the future income tax assets and liabilities.

(k) revenue recognition

The Corporation’s services are generally sold based upon purchase orders or contracts with the

customer that include fixed or determinable prices based upon daily, hourly or job rates. Customer contract

terms do not include provisions for significant post-service delivery obligations. Revenue is recognized

when services and equipment rentals are rendered and only when collectability is reasonably assured.



(l) employee benefit plans

At December 31, 2004, approximately 36% of the Corporation’s employees were enrolled in the

Corporation’s retirement plans. The majority participate in defined contribution plans with

approximately 3% of participating employees enrolled in a defined benefit plan.

Employer contributions to defined contribution plans are expensed as employees earn the

entitlement and contributions are made.

The Corporation accrues the cost of pensions earned by employees under its defined benefit plan,

which is actuarially determined using the projected benefit method pro-rated on services and

management’s best estimate of expected plan investment performance, salary escalation and retirement

ages of employees. For the purpose of calculating the expected return on plan assets, those assets are

valued at quoted market value at the balance sheet date. The discount rate used to calculate the interest

cost on the accrued benefit obligation is the long-term market rate at the balance sheet date. Past service

costs from plan amendments are amortized on a straight-line basis over the average remaining service

period of employees active at the date of amendment (EARSL). The excess of the net cumulative

unamortized actuarial gain or loss over 10% of the greater of the accrued benefit obligation and the

market value of plan assets is amortized over EARSL.

The Corporation has entered into an employment agreement with a senior officer, which provides

for a one-time payment upon retirement. The amount of this retirement allowance increases by a fixed

amount for each year of service over a ten year period commencing April 30, 1996. The estimated cost of

this benefit is accrued and charged to earnings on a straight-line basis over the ten year period.

(m) foreign currency translation

Accounts of the Corporation’s integrated foreign operations are translated to Canadian dollars using

average exchange rates for the year for revenue and expenses. Monetary assets and liabilities are translated

at the year-end exchange rate and non-monetary assets and liabilities are translated using historical rates

of exchange. Gains or losses resulting from these translation adjustments are included in net earnings.

Accounts of the Corporation’s self-sustaining operations are translated to Canadian dollars using

average exchange rates for the year for revenue and expenses. Assets and liabilities are translated at the

year-end exchange rate.

Gains or losses resulting from these translation adjustments are included in the cumulative

translation adjustment account in shareholders’ equity.

Transactions in foreign currencies are translated at rates in effect at the time of the transaction.

Monetary assets and liabilities are translated at current rates. Gains and losses are included in net earnings.

Gains and losses arising on translation of long-term debt designated as a hedge of self-sustaining

foreign operations are deferred and included in the cumulative translation adjustment account in

shareholders’ equity on a net of tax basis.

(n) hedging relationships

The Corporation utilizes foreign currency long-term debt to hedge its exposure to changes in the

carrying values of the Corporation’s net investment in certain self-sustaining foreign operations as a result

of changes in foreign exchange rates.

To be accounted for as a hedge, the foreign currency long-term debt must be designated and

documented as a hedge, and must be effective at inception and on an ongoing basis. The documentation

defines the relationship between the foreign currency long-term debt and the net investment in the foreign

operations, as well as the Corporation’s risk management objective and strategy for undertaking the hedging

transaction. The Corporation formally assesses, both at the hedge’s inception and on an ongoing basis



whether the changes in fair value of the foreign currency long-term debt is highly effective in offsetting

changes in fair value of the net investment in the foreign operations. If the hedging relationship is terminated

or ceases to be effective, hedge accounting is not applied to subsequent gains or losses. Any previously

deferred amounts are carried forward and recognized in earnings in the same period as the hedged item.

(o) stock-based compensation plans

The Corporation has equity incentive plans, which are described in Note 8. The fair value of

common share purchase options is calculated at the date of grant using the Black-Scholes option pricing

model and that value is recorded as compensation expense over the grant’s vesting period with an

offsetting credit to contributed surplus. Upon exercise of the share purchase option, the associated amount

is reclassified from contributed surplus to share capital. Consideration paid by employees upon exercise of

share purchase options is credited to share capital.

(p) research and engineering

Research and engineering costs are charged to income as incurred. Costs associated with the

development of new operating tools and systems are expensed during the period unless the recovery of

these costs can be reasonably assured given the existing and anticipated future industry conditions. Upon

successful completion and field testing of the tools and systems, any deferred costs are transferred to the

related capital asset accounts.

(q) per share amounts

Basic per share amounts are calculated using the weighted average number of shares outstanding

during the year. Diluted per share amounts are calculated based on the treasury stock method, which

assumes that any proceeds obtained on exercise of options would be used to purchase common shares at

the average market price during the period. The weighted average number of shares outstanding is then

adjusted by the difference between the number of shares issued from the exercise of options and shares

repurchased from the related proceeds.

(r) comparative figures

Certain comparative figures have been reclassified to conform to the current financial statement

presentation.

2. Accounting Changes:

stock-based compensation plans

Effective January 1, 2004, the Corporation adopted the revised Canadian accounting standards with

respect to accounting for stock-based compensation. Under the new standard, the fair value of common share

purchase options is calculated at the date of the grant and that value is recorded as compensation expense over

the vesting period of those grants. Under the previous standard, no compensation expense was recorded when

stock options were issued with any consideration received upon exercise credited to share capital.

The Corporation has retroactively applied this standard, with restatement of prior years, to all

common share purchase options granted since January 1, 2002. This has resulted in a charge to net earnings

for the year ended December 31, 2004 of $13.8 million (2003 – $8.2 million; 2002 – $6.3 million) or $0.22

diluted earnings per share (2003 – $0.15; 2002 – $0.11) and a reduction to opening retained earnings of

$14.5 million at January 1, 2004 ($6.3 million at January 1, 2003).



3. Property, Plant and Equipment:Accumulated Net Book

2004 Cost Depreciation Value

Rig equipment $ 1,462,009 $ 397,987 $ 1,064,022

Field technical equipment 713,729 190,153 523,576

Rental equipment 77,246 32,117 45,129

Other equipment 287,764 126,372 161,392

Vehicles 109,749 38,558 71,191

Buildings 80,313 17,636 62,677

Land 17,534 – 17,534

$ 2,748,344 $ 802,823 $ 1,945,521

Accumulated Net Book2003 Cost Depreciation Value

Rig equipment $ 1,128,300 $ 324,097 $ 804,203

Field technical equipment 601,752 113,617 488,135

Rental equipment 77,640 30,128 47,512

Other equipment 198,821 95,105 103,716

Vehicles 88,329 23,444 64,885

Buildings 76,589 15,603 60,986

Land 15,517 – 15,517

$ 2,186,948 $ 601,994 $ 1,584,954

4. Goodwill:

Balance, December 31, 2002 (1) $ 546,921

Disposal of subsidiaries (9,229)

Reduction of carrying amounts related to discontinued operations (5,982)

Balance, December 31, 2003 (1) 531,710

Acquisitions 222,617

Effect of foreign exchange on goodwill of self-sustaining foreign operations (15,621)

Reduction of carrying amounts related to discontinued operations (3,293)

Balance, December 31, 2004 $ 735,413

(1) Includes amounts assigned to discontinued operations

5. Other Assets:2004 2003

Deferred financing costs, net of accumulated amortization $ 9,116 $ 5,083

Investments, at cost less provision for impairment – 3,539

Investments, at equity – 310

$ 9,116 $ 8,932



6. Bank Indebtedness:

At December 31, 2004, the Corporation had available $63.0 million and US$30.7 million under

uncommitted credit facilities, of which none had been drawn (December 31, 2003 – $17.9 million).

Availability of these facilities was reduced by outstanding letters of credit in the amount of $33.3 million.

Interest rates on the facilities are calculated at the respective lending institution’s prime interest rate less

an applicable margin ranging from zero to 0.75%.

At December 31, 2003, the Corporation had included $130.0 million of borrowings under its extendible

revolving unsecured facility in bank indebtedness, as the funds were used to finance working capital.

7. Long-term Debt:2004 2003

Unsecured debentures – Series 1 $ 200,000 $ 200,000

Unsecured debentures – Series 2 150,000 150,000

Unsecured notes, US$300.0 million 368,850 –

EDC facility (US$2,639) – 3,459

EDC facility (US$20,000) – 26,214

EDC facility (US$20,190) – 26,463

Extendible revolving unsecured facility – 9,815

Other 38 629

718,888 416,580

Less amounts due within one year 18 17,158

$ 718,870 $ 399,422

The $200.0 million 6.85% Series 1 unsecured debentures mature June 26, 2007 and have an effective

interest rate of 7.44% after taking into account deferred financing costs. The debentures are redeemable at any

time at the option of the Corporation upon payment of a redemption price equal to the greater of an amount

calculated with reference to the yield on a Government of Canada bond with the same maturity, and par.

The $150.0 million 7.65% Series 2 unsecured debentures mature October 27, 2010 and have an

effective interest rate of 7.71% after taking into account deferred financing costs. The debentures are

redeemable at any time at the option of the Corporation upon payment of a redemption price equal to

the greater of an amount calculated with reference to the yield on a Government of Canada bond with the

same maturity, and par.

The US$300.0 million 5.625% unsecured notes mature June 1, 2014 and have an effective interest

rate of 5.71% after taking into account deferred financing costs. The notes are redeemable at any time at

the option of the Corporation upon payment of a redemption price equal to the greater of an amount

calculated with reference to the yield on a United States treasury security with the same maturity, and par.

The $3.5 million unsecured term financing facility with Export Development Canada (EDC) matured

on January 20, 2004 and bore interest at six-month U.S. Libor plus applicable margin. The margin was

dependent upon the Corporation’s credit rating, which at December 31, 2003 resulted in a margin of 0.8%.

The $26.2 million unsecured term financing facility with EDC was repaid and cancelled in 2004 and

bore interest at six-month U.S. Libor plus applicable margin. The margin was dependent upon the

Corporation’s credit rating, which at December 31, 2003 resulted in a margin of 0.9%.

The Corporation has a three year revolving unsecured facility of $335.0 million (or U.S. equivalent)

with a syndicate led by a Canadian chartered bank. The facility matures August 31, 2007 and is renewable

annually at the option of the lenders. Advances are available to the Corporation under this facility either

at the bank’s prime lending rate, U.S. base rate, U.S. Libor plus applicable margin or Bankers’ Acceptance

plus applicable margin or in combination. The applicable margin is dependent on the Corporation’s credit



rating and the percentage of the total facility outstanding, which at December 31, 2004 resulted in a margin

of 0.8%. The facility is extendible annually at the option of the lenders. No amounts were drawn on this

facility at December 31, 2004. As at December 31, 2003, the Corporation had drawn $139.8 million under

this facility, of which $130.0 million was included in bank indebtedness as the funds were used to finance

working capital. The facility requires that the Corporation maintain a ratio of total liabilities to total

equity of less than 1:1 and a ratio of debt to cash flow of less than 2.75:1.

The Corporation has a US$50 million unsecured facility with EDC maturing on December 8, 2005

and bearing interest at six-month U.S. Libor plus applicable margin. The margin is dependent upon

the Corporation’s margin on its $335 million three year revolving unsecured credit facility, which at

December 31, 2004 resulted in a margin of 0.8%. The facility is extendible upon mutual agreement

between the Corporation and EDC, or can be converted, at the Corporation’s option, to a term loan

repayable in two equal semi-annual installments. No amounts were drawn on this facility at December 31,

2004. At December 31, 2003, the Corporation had drawn $26.5 million (US$20.2 million) under this

facility. The facility requires that the Corporation maintain a ratio of total liabilities to total equity of less

than 1:1 and a ratio of debt to cash flow of less than 2.75:1.

Principal repayments after 2004 are as follows:

2005 $ 18

2006 20

2007 200,000

2010 and thereafter 518,850

$ 718,888

8. Share Capital:

(a) authorized

• unlimited number of non-voting cumulative convertible redeemable preferred shares without

nominal or par value;

• unlimited number of common shares without nominal or par value.

(b) issued

Common Shares: Number Amount

Balance, December 31, 2001 53,176,038 $ 887,160

Options exercised – cash consideration 890,715 25,756

– reclassification from contributed surplus – 171


Options exercised – cash consideration 778,925 23,613

– reclassification from contributed surplus – 44


Issuance of common shares, net of costs and related tax effect 4,400,000 280,783

Options exercised – cash consideration 1,544,534 55,361

– reclassification from contributed surplus – 2,079

Balance, December 31, 2004 60,790,212 $ 1,274,967

In the third quarter of 2004, the Corporation issued 4,400,000 common shares at US$49.80 for net

proceeds of approximately $276.5 million. Proceeds of the offering were primarily used to repay

indebtedness incurred in connection with the acquisition of all of the issued and outstanding shares of

Reeves Oilfield Services Ltd.



(c) contributed surplus

Balance, December 31, 2001 $ –

Stock-based compensation expense 6,279

Reclassification to common shares on exercise of options (171)



Reclassification to common shares on exercise of options (44)



Reclassification to common shares on exercise of options (2,079)


(d) equity incentive plans

The Corporation has equity incentive plans under which a combined total of 3,941,132 options to

purchase common shares are reserved to be granted to employees and directors. Of the amount reserved,

3,347,560 options have been granted. Under these plans, the exercise price of each option equals the

market value of the Corporation’s stock on the date of the grant and an option’s maximum term is 10

years. Options vest over a period from 1 to 4 years from the date of grant as employees or directors render

continuous service to the Corporation.

A summary of the equity incentive plans as at December 31, 2002, 2003 and 2004, and changes

during the periods then ended is presented below:

WeightedAverage

Options Range of Exercise OptionsOutstanding Exercise Price Price Exercisable

Outstanding at December 31, 2001 4,406,281 $ 13.50 – 65.90 $ 35.21 1,217,428

Granted 786,050 41.06 – 52.61 48.77

Exercised (890,715) 13.50 – 44.38 28.92

Cancelled (182,288) 25.50 – 65.90 40.19


Granted 416,000 49.28 – 51.04 50.61

Exercised (778,925) 13.50 – 51.00 30.34

Cancelled (363,209) 31.05 – 65.90 44.89


Granted 1,690,500 40.25 – 72.63 63.53

Exercised (1,544,534) 13.50 – 57.55 35.83

Cancelled (191,600) 31.05 – 65.90 51.36




The range of exercise prices for options outstanding at December 31, 2004 are as follows:

Total Options Outstanding Exercisable Options

WeightedWeighted Average Weighted

Average Remaining AverageExercise Contractual Exercise

Range of Exercise Prices: Number Price Life (Years) Number Price

$ 31.05 – 39.99 321,250 $ 37.29 0.68 291,875 $ 37.92

40.00 – 49.99 585,910 44.02 3.26 449,226 43.28

50.00 – 59.99 911,975 52.60 4.40 547,175 52.41

60.00 – 69.99 1,477,425 63.79 4.61 1,875 65.10

70.00 – 72.63 51,000 72.63 4.75 – –

$ 31.05 – 72.63 3,347,560 $ 54.87 3.94 1,290,151 $ 45.97

In accordance with the Corporation’s stock option plans, these options have an exercise price equal

to the market price at date of grant. The per share weighted average fair value of stock options granted

during the year ended December 31, 2004 was $15.66 (2003 – $19.48; 2002 – $20.85) based on the date of

grant valuation using the Black-Scholes option pricing model with the following assumptions: average

risk-free interest rate of 3.44% (2003 – 3.47%; 2002 – 4.53%), average expected life of 2.97 years (2003 –

3.42 years; 2002 – 3.88 years) and expected volatility of 32.33% (2003 – 47%; 2002 – 49%).

For the year ended December 31, 2004, stock-based compensation costs included in net earnings

totaled $13.8 million (2003 – $8.2 million; 2002 – $6.3 million).

9. Employee Benefit Plans:

The Corporation has registered pension plans covering a significant number of its employees. Of

participating employees, approximately 97% participate in the defined contribution plan and

approximately 3% participate in the defined benefit plan.

(a) defined contribution plan

Under the defined contribution plan, the Corporation matches individual contributions up to 5%

of the employee’s compensation. Expense under the defined contribution plan in 2004 was $7.3 million

(2003 – $7.5 million, 2002 – $6.9 million).

(b) defined benefit plans

The defined benefit plans were acquired as part of the Reeves Oilfield Services Ltd. acquisition in

2004 (see Note 14) and have been closed to new employees since the date of acquisition. The latest

actuarial valuations of the defined benefit pension plans were at December 31, 2004. The measurement

date used to determine plan assets and accrued benefit obligation was December 31, 2004. Significant

actuarial assumptions adopted in measuring the Corporation’s accrued benefit obligation at the

measurement date included a liability discount rate of between 5.5% and 6.0%, an expected long-term

rate of return on plan assets of between 5.8% and 6.4% and a rate of compensation increase of between

3.8% and 5.0%, excluding promotions. At the measurement date, the plans had an unfunded deficit of

$13.5 million as accrued benefit obligations of $41.5 million exceeded plan assets of $28.0 million. The

Corporation will contribute to the plans in 2005. The unfunded deficit liability is included in accounts

payable and accrued liabilities on the consolidated balance sheet.

Expense under the defined benefit plans in 2004 totaled $1.1 million.



(c) retirement allowance

With respect to the retirement allowance described in Note 1(l), the Corporation charged $335,000

to earnings in 2004 (2003 – $351,000; 2002 – $371,000) and at December 31, 2004 had accrued a total of

$2.7 million, which amount is included in accounts payable and accrued liabilities.

10. Commitments:

The Corporation has commitments for operating lease agreements, primarily for vehicles and office

space, in the aggregate amount of $101.1 million. Payments over the next five years are as follows:

2005 $ 32,155

2006 23,018

2007 15,252

2008 10,394

2009 9,516

Rent expense included in the statements of earnings is as follows:

2004 $ 23,158

2003 23,924

2002 18,085

11. Income Taxes:

The provision for income taxes differs from that which would be expected by applying statutory

rates. A reconciliation of the difference is as follows:2004 2003 2002

Earnings from continuing operations before

income taxes and non-controlling interest $ 382,443 $ 249,783 $ 108,170

Income tax rate 36% 36% 39%

Expected income tax provision $ 137,679 $ 89,922 $ 42,186

Add (deduct):

Non-deductible expenses 7,315 2,380 2,084

Income taxed in jurisdictions with lower tax rates (19,006) (14,062) (13,450)

Non-deductible stock-based compensation 3,378 2,880 2,408

Non-taxable disposition of investment – (2,327) –

Other 4,088 (5,925) (3,730)

133,454 72,868 29,498

Reduction of future tax balances due to

substantively enacted tax rate reductions (1,896) (2,988) (2,551)

$ 131,558 $ 69,880 $ 26,947

Effective income tax rate 34% 28% 25%

In 2004, the Province of Alberta enacted a 1.0% reduction in tax rates (2003 - 0.5%; 2002 - 0.5%).

These reductions have been reflected as a reduction in future tax expense in the respective years.



The Corporation’s operations are complex and computation of the provision for income taxes

involves tax interpretations, regulations and legislation that are continually changing. There are tax

matters that have not yet been confirmed by taxation authorities, however, management believes the

provision for income taxes is adequate.

The net future tax liability is comprised of the tax effect of the following temporary differences:

2004 2003

Liabilities:

Property, plant and equipment and intangibles $ 354,876 $ 290,371

Operations of a partnership with different tax year 124,251 92,163

Deferred financing costs 1,584 1,774

$ 480,711 $ 384,308

Assets:

Losses carried forward $ 83,425 $ 87,487

Valuation allowance (15,140) (24,056)

Accrued liabilities 15,452 278

83,737 63,709

$ 396,974 $ 320,599

The Corporation has available losses of $246.8 million of which, after valuation allowances, the

benefit of $203.8 million has been recognized. These losses expire depending upon the year incurred and

various limitations under tax codes in the jurisdictions in which the losses were incurred.

During 2004, $7.5 million, representing future tax expense on foreign exchange gains associated

with the Corporation’s US$300 million unsecured notes was charged to the cumulative translation

adjustment account in shareholders’ equity.

12. Per Share Amounts:

The following table summarizes the common shares used in calculating earnings per share:

For the years ended December 31, 2004 2003 2002

Weighted average common shares outstanding – basic 57,827 54,430 53,702

Effect of stock options 778 869 1,113

Weighted average common shares outstanding – diluted 58,605 55,299 54,815

13. Significant Customers:

During the years ended December 31, 2004, 2003 and 2002, no one customer accounted for more

than 10% of the Corporation’s revenue.

14. Acquisitions:

Acquisitions have been accounted for by the purchase method with results of operations acquired

included in the financial statements from the effective date of acquisition. The details of acquisitions for

the past three years are as follows.



During the year ended December 31, 2004, in accordance with the Corporation’s globalization and

technology advancement strategies, the Corporation completed several acquisitions, the most significant

of which were:

(a) On May 14, 2004, the Corporation acquired all of the issued and outstanding shares of Reeves

Oilfield Services Ltd. (Reeves), including a 56.5% interest in Allegheny Wireline Services, Inc.

(Allegheny). On October 14, 2004, the Corporation acquired the remaining 43.5% interest in

Allegheny. In the intervening period from the date of acquisition of Reeves to the acquisition of

the remaining interest in Allegheny, earnings attributable to non-controlling interest totaled $1.3

million. Reeves provides open hole and cased hole logging services to the oil and gas industry

with operations in Canada, the United States, Australia, Africa, Europe and the Middle East.

Intangible assets acquired relate entirely to intellectual property. The Reeves operations have

been included in the Energy Services segment.

(b) On May 21, 2004, the Corporation acquired land drilling assets, located in Venezuela and the

Middle East, from GlobalSantaFe Corporation (GlobalSantaFe). Intangible assets acquired relate

to non-competition agreements and customer contracts. The GlobalSantaFe operations have

been included in the Contract Drilling segment.

Reeves GlobalSantaFe Other Total

Net assets acquired at assigned values:

Working capital $ 23,000 (1) $ 12,463 $ 60 $ 35,523

Intangible assets 106,900 33,138 – 140,038

Property, plant and equipment 41,730 296,655 1,547 339,932

Goodwill (no tax basis) 118,531 103,956 130 222,617

Non-controlling interest in

earnings of intervening period 1,298 – – 1,298

Future income taxes (37,732) (9,720) – (47,452)

$ 253,727 $ 436,492 $ 1,737 $ 691,956

Consideration:

Cash $ 253,727 $ 436,492 $ 1,737 $ 691,956

(1) includes cash of $12,142

In February 2003, the Corporation completed the acquisition of the operating assets of MacKenzie

Caterers (1984) Ltd. (MacKenzie), a provider of oilfield camp and catering services in western Canada, for

$6.8 million. No value was assigned to intangibles or goodwill.

In September 2002, the Corporation acquired the business assets of NightHawk Vacuum Services Ltd.

(NightHawk) for $3.1 million. NightHawk provided oilfield vacuum services in northern Alberta and British

Columbia. No value was assigned to intangibles or goodwill. In addition, the Corporation paid $1.5 million

in additional consideration in conjunction with an acquisition made in 2001. This consideration was payable

based on the development of a commercially viable technology and was accounted for as goodwill.

15. United States Generally Accepted Accounting Principles:

These financial statements have been prepared in accordance with Canadian GAAP which

conform with United States generally accepted accounting principles (U.S. GAAP) in all material

respects, except as follows:



(a) income taxes

In 2000 the Corporation adopted the liability method of accounting for future income taxes without

restatement of prior years. As a result, the Corporation recorded an adjustment to retained earnings and

future tax liability in the amount of $70.0 million at January 1, 2000. U.S. GAAP required the use of the

liability method prescribed in the Statement of Financial Accounting Standards (SFAS) No. 109, which

substantially conforms to the Canadian GAAP accounting standard adopted in 2000. Application of U.S.

GAAP in years prior to 2000 would have resulted in $70.0 million of additional goodwill being recognized

at January 1, 2000 as opposed to an implementation adjustment to retained earnings allowed under

Canadian GAAP. In 2002, 2003 and 2004 the U.S. GAAP financial statements would reflect an increase in

goodwill of $63.0 million and a corresponding increase in retained earnings. An additional charge to

retained earnings of $3.5 million would be required related to amortization of this goodwill in 2001.

(b) stock-based compensation

In 2004, under Canadian GAAP, the Corporation adopted the fair value of accounting for stock-

based compensation with restatement of prior years for share purchase options granted after January 1, 2002.

U.S. GAAP allows the use of either the intrinsic method, as prescribed by Accounting Principles Board

(APB) Opinion 25, or the fair value method as prescribed by SFAS 123. Where companies elect to use the

intrinsic method, disclosure of the impact of using the fair value method is required.

Application of the intrinsic method in accordance with APB Opinion 25 would have resulted in an

increase in net income of $13.8 million for 2004 (2003 – $8.2 million, 2002 – $6.3 million) and with a

corresponding increase in shareholders’ equity. Had the Corporation determined compensation based on

the fair value at the date of grant for its options under SFAS 123, net earnings in accordance with U.S.

GAAP would have been $247.8 million in 2004, $180.7 million in 2003 and $80.9 million in 2002. Basic

earnings per share would have been $4.28 in 2004, $3.32 in 2003 and $1.51 in 2002.

(c) acquisitions

Under U.S. GAAP, when significant acquisitions have occurred, supplemental disclosure is required on

a pro forma basis of the results of operations for the current prior periods as though the business combination

had occurred at the beginning of the period unless it is not practicable to do so. At December 31, 2004, the

Corporation did not have access to sufficient information to provide this disclosure.

(d) recently issued accounting pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123R Share

Based Payment – An Amendment of FASB Statement Nos. 123 and 95. The Statement addresses the

accounting for transactions in which an enterprise receives employee services in exchange for (a) equity

instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity

instruments or that may be settled by the issuance of such equity instruments. Companies will be required

to recognize an expense for compensation cost related stock-based compensation on a basis consistent

with SFAS 123 for periods beginning on or after June 15, 2005.



The application of U.S. accounting principles would have the following impact on the consolidated

financial statements:

Consolidated Statements of Earnings

Years ended December 31, 2004 2003 2002

Net earnings under Canadian GAAP $ 247,404 $ 180,474 $ 84,986

Adjustments under U.S. GAAP:

Stock-based compensation expense 13,837 8,202 6,279

Net income under U.S. GAAP 261,241 188,676 91,265

Cumulative Translation Adjustment (20,933) – –

Comprehensive Income under U.S. GAAP $ 240,308 $ 188,676 $ 91,265

Earnings per share under U.S. GAAP:

Basic $ 4.52 $ 3.47 $ 1.70

Diluted $ 4.46 $ 3.41 $ 1.66

Consolidated Balance Sheets

December 31, 2004 December 31, 2003As reported U.S. GAAP As reported U.S. GAAP

Current assets $ 936,074 $ 936,074 $ 687,982 $ 687,982

Property, plant and equipment 1,945,521 1,945,521 1,584,954 1,584,954

Intangibles 191,665 191,665 65,262 65,262

Goodwill 735,413 798,442 527,443 590,472

Other assets 9,116 9,116 8,932 8,932

Future income tax asset 32,984 32,984 28,699 28,699

Long-term assets of

discontinued operations – – 35,336 35,336

$ 3,850,773 $ 3,913,802 $ 2,938,608 $ 3,001,637

Current liabilities $ 378,673 $ 378,763 $ 438,988 $ 438,988

Long-term debt 718,870 718,870 399,422 399,422

Future income taxes 431,399 431,399 350,031 350,031

Future income taxes of

discontinued operations – – 1,107 1,107

Non-controlling interest – – 3,771 3,771

Shareholders’ equity 2,321,741 2,384,770 1,745,289 1,808,318

$ 3,850,773 $ 3,913,802 $ 2,938,608 $ 3,001,637

Consolidated Statement of Cash Flows

The application of U.S. accounting principles would have no impact on the consolidated statement of cash

flows, except that under U.S. accounting principles, no subtotal for funds provided by continuing

operations before changes in non-cash working capital balances is allowed.



16. Segmented Information:

The Corporation operates in three industry segments. Contract Drilling includes drilling rigs,

service rigs and hydraulic well assist snubbing units, procurement and distribution of oilfield supplies,

camp and catering services, and manufacture, sale and repair of drilling equipment. Energy Services

(formerly Technology Services) includes Wireline, Drilling & Evaluation and Production Services. Rental

and Production includes oilfield equipment rental services and industrial process services.

Contract Energy Rental and Corporate2004 Drilling Services Production and Other Total

Revenue $ 1,235,410 $ 874,314 $ 215,492 $ – $ 2,325,216

Operating earnings 399,487 36,719 40,026 (51,779) 424,453

Research and engineering – 48,759 – – 48,759

Depreciation and amortization 92,161 92,477 13,806 5,385 203,829

Total assets 1,920,893 1,627,572 179,521 122,787 3,850,773

Goodwill 350,941 355,770 28,702 – 735,413

Capital expenditures* 110,192 136,091 17,201 19,060 282,544


Revenue $ 992,824 $ 696,599 $ 210,724 $ – $ 1,900,147

Operating earnings 284,850 (3,847) 39,067 (38,592) 281,478



Total assets 1,423,036 1,287,458 166,300 61,814 2,938,608

Goodwill 257,531 241,340 28,572 – 527,443



Revenue $ 770,147 $ 586,180 $ 192,840 $ 1,431 $ 1,550,598

Operating earnings 183,859 (40,033) 29,913 (31,385) 142,354



Total assets 1,312,459 1,143,282 240,842 79,164 2,775,747

Goodwill 257,531 241,340 28,572 – 527,443


* Excludes business acquisitions



The Corporation’s operations are carried on in the following geographic locations:

2004 Canada International Total

Revenue $ 1,476,212 $ 849,004 $ 2,325,216

Assets 2,234,848 1,615,925 3,850,773


Revenue $ 1,333,926 $ 566,221 $ 1,900,147

Assets 2,121,832 816,776 2,938,608


Revenue $ 1,007,069 $ 543,529 $ 1,550,598

Assets 2,081,200 694,547 2,775,747

17. Financial Instruments:

(a) fair value

The carrying value of cash and cash equivalents, accounts receivable and accounts payable and

accrued liabilities approximate their fair value due to the relatively short period to maturity of the

instruments. The fair value of long-term debt, exclusive of the unsecured debentures and notes,

approximates its carrying value as it bears interest at floating rates.

The fair values of the unsecured debentures and notes have been calculated with reference to the

year end prevailing interest and foreign exchange rates and are as follows:

December 31, 2004 December 31, 2003($ millions) Carrying Value Fair Value Carrying Value Fair Value

Unsecured debentures – Series 1 200.0 215.4 200.0 216.2

Unsecured debentures – Series 2 150.0 174.5 150.0 170.8

Unsecured notes, US$300.0 million 368.9 384.8 – –

(b) credit risk

Accounts receivable includes balances from a large number of customers primarily operating in the

oil and gas industry. The Corporation assesses the credit worthiness of its customers on an ongoing basis

as well as monitoring the amount and age of balances outstanding. Accordingly, the Corporation views the

credit risks on these amounts as normal for the industry. As at December 31, 2004 the Corporation’s

allowance for doubtful accounts was $13.7 million (December 31, 2003 – $16.0 million).

(c) interest rate risk

The Corporation manages its exposure to interest rate fluctuations through the issuance of fixed rate

borrowings. As at December 31, 2004, all of the Corporation’s debt was subject to fixed interest rates.

(d) foreign currency risk

The Corporation is exposed to foreign currency fluctuations in relation to its international

operations. To manage a portion of this exposure, the Corporation has designated the US$300.0 million

notes as a hedge against foreign currency fluctuations of its investment in self-sustaining foreign

operations. A foreign exchange gain of $43.1 million associated with these notes has been included in the

cumulative translation adjustment account in shareholders’ equity.



18. Supplemental information:2004 2003 2002

Interest paid $ 46,335 $ 36,721 $ 35,660

Income taxes paid 74,694 43,994 89,856

Components of change in non-cash

working capital balances:

Accounts receivable $ (136,858) $ (112,161) $ 13,941

Inventory 3,090 (6,709) (12,100)

Accounts payable and accrued liabilities 62,660 2,854 19,521

Income taxes payable 20,930 16,352 (17,647)

$ (50,178) $ (99,664) $ 3,715

The components of accounts receivable are as follows:

2004 2003

Trade $ 470,679 $ 358,445

Accrued trade 154,815 133,926

Prepaids and other 65,505 46,999

$ 690,999 $ 539,370

The components of accounts payable and accrued liabilities are as follows:

2004 2003

Accounts payable $ 179,679 $ 62,626

Accrued liabilities

Payroll 76,596 43,741

Unfunded pension deficit 13,526 –

Other 70,571 152,436

$ 340,372 $ 258,803

19. Contingencies:

The Corporation, through the performance of its services, product sales and business arrangements,

is sometimes named as a defendant in litigation. One such case relates to a former agent of the

Corporation in Indonesia who has sued in Indonesia civil courts seeking, among other things, damages of

US$17.5 million in a suit filed in 2002 and damages of US$0.7 million in a suit filed in 2003. At

intermediate appeal, damages in the first suit have been reduced to US$4.0 million and a further appeal is

continuing. All claims against the Corporation in the second suit were rejected at trial. In addition,

criminal charges against principals of the former Indonesia agent have been laid by the state in connection

with this matter and are at trial. The outcome of this and other claims against the Corporation is not

determinable at this time, however, their ultimate resolution in not expected to have a material adverse

effect on the Corporation.

The Corporation maintains a level of insurance coverage deemed appropriate by management and

for matters for which insurance coverage can be acquired.



20. Discontinued Operations:

On February 12, 2004, the Corporation sold substantially all of the assets of Fleet Cementers, Inc. for

proceeds of $25.7 million. On May 7, 2004, the Corporation sold the assets of the Polar Completions

division for proceeds of $15.0 million, subject to working capital adjustments. On August 31, 2004, the

Corporation sold its 65% interest in United Diamond Ltd. for proceeds of $8.5 million. Additional proceeds

in the amount of up to $9.5 million are receivable with respect to the sale of United Diamond Ltd.,

contingent upon the extent of future business undertaken between the Corporation and United Diamond

Ltd. No portion of the $9.5 million of contingent proceeds has been recognized. These assets were included

in what is now called the Energy Services segment (previously Technology Services) and were disposed of

as they were not a core component to the Corporation’s energy services globalization strategy.

Effective January 1, 2003, the Corporation sold Energy Industries Inc., a wholly-owned subsidiary

included in the Rental and Production segment, for $60.0 million cash. Energy Industries designed and

manufactured modularized natural gas compression packages. These assets were included in the Rental

and Production segment and were disposed of as they were not a core component to the Corporation’s

globalization strategy.

In May 2003, the Corporation sold its 50% interest in Energy Equipment Rentals General partnership

(“EER”) and Oil Drilling Exploration (Argentina) SA (“OD&E”) for cash proceeds of $6.9 million, net of

transaction costs. Both entities were components of the Contract Drilling segment and were disposed of as

they were not a core component to the Corporation’s contract drilling globalization strategy.

Results of the operations of these businesses have been classified as results of discontinued

operations. The following table provides additional information with respect to amounts included in the

results of discontinued operations:

2004 2003 2002

Revenue

Energy Industries $ – $ – $ 81,563

Fleet Cementers, Polar Completions

and United Diamond 23,885 65,936 53,187

Other – 560 3,802

$ 23,885 $ 66,496 $ 138,552

Gain on disposal of Energy Industries $ – $ 13,071 $ –

Gain on disposal of EER and OD&E – 4,389 –

Loss on disposal of Fleet Cementers’ assets (362) – –

Loss on disposal of United Diamond (254) – –

$ (616) $ 17,460 $ –

Results of operations before income taxes

Energy Industries $ – $ – $ 13,545

Fleet Cementers, Polar Completions

and United Diamond 4,999 (8,155) (2,116)

Other – 49 (1,154)

Writedown of assets held for sale (6,117) (10,799) –

(1,118) (18,905) 10,275

Income tax expense (recovery) (933) (3,768) 5,361

Results of operations, before non-controlling interest (185) (15,137) 4,914

Non-controlling interest 1,382 1,752 1,151

(1,567) (16,889) 3,763

Discontinued operations $ (2,183) $ 571 $ 3,763



The following table provides additional information with respect to amounts included in the

balance sheet as assets and liabilities held for sale:

2004 2003

Accounts receivable $ – $ 12,637

Inventory – 16,360

Other – 1,511

$ – $ 30,508

Property, plant and equipment $ – $ 30,306

Goodwill – 4,267

Other – 763

$ – $ 35,336

Accounts payable and accrued liabilities $ – $ 6,452

Other – 739

$ – 7,191

Future income taxes $ – $ 1,107

The following table provides additional information with respect to amounts included in the

statements of cash flow related to discontinued operations:

2004 2003 2002

Net earnings (loss) of discontinued operations $ (2,183) $ 571 $ 3,763

Items not affecting cash:

Loss (gain) on disposal of discontinued operations 616 (17,460) –


Writedown of assets of discontinued operations 3,293 10,799 –

Stock-based compensation – 201 105

Future income taxes (582) (4,916) (2,908)

Non-controlling interest 1,382 1,752 1,151

Funds provided by (used in) discontinued operations $ 3,689 $ (309) $ 10,512

Components of change in non-cash working capital balances:

2004 2003 2002

Accounts receivable $ 401 $ 1,485 $ 16,888

Inventory 618 3,608 (9,416)

Accounts payable and accrued liabilities (3,835) 1,709 (4,263)

Income taxes payable 2,369 (1,039) (2,921)

$ (447) $ 5,763 $ 288

21. Guarantees:

The Corporation has entered into agreements indemnifying certain parties primarily with respect

to tax and specific third party claims associated with businesses sold by the Corporation. Due to the nature

of the indemnifications, the maximum exposure under these agreements cannot be estimated. No

amounts have been recorded for such indemnities as the Corporation’s obligations under them are not

probable and estimable.



STATEMENTS OF EARNINGS AND RETAINED EARNINGS

Years ended December 31,

(stated in millions of Canadian dollars except per share amounts) 2004 2003

Revenue 2,325.2 1,900.1

Expenses:

Operating 1,471.2 1,265.2

General and administrative 173.7 143.3

Depreciation and amortization 203.8 170.4

Research and engineering 48.7 42.4

Foreign exchange 3.3 (2.7)

Operating earnings 424.5 281.5

Interest, net 46.9 35.1

Dividend income – –

Gain on disposal of investments (4.9) (3.4)

Reduction of carrying amount of investments – –

Reduction of carrying amount of property, plant and equipment – –

Forgiveness of long-term debt – –

Earnings from continuing operations before income taxes,

non-controlling interest and goodwill amortization 382.5 249.8

Income taxes 131.6 69.9

Earnings from continuing operations before non-controlling

interest and goodwill amortization 250.9 179.9

Non-controlling interest 1.3 –

Earnings from continuing operations before goodwill amortization 249.6 179.9

Goodwill amortization – –

Earnings from continuing operations 249.6 179.9

Discontinued operations (2.2) 0.6

Net earnings 247.4 180.5

Retained earnings, beginning of period 794.3 613.8

Adjustment on adoption of liability method of

accounting for income taxes – –

Retained earnings, end of period 1,041.7 794.3

Earnings per share from continuing operations before goodwill amortization:

Basic ($) 4.32 3.31

Diluted ($) 4.26 3.25

Earnings per share from continuing operations :

Basic ($) 4.32 3.31

Diluted ($) 4.26 3.25

Earnings per share :

Basic ($) 4.28 3.32

Diluted ($) 4.22 3.26

(1) Not available.


supplementary information 109

Years ended December 31, Years ended April 30,

2002 2001 2000 1995 1990

1,550.6 1,798.1 1,250.3 178.6 31.7

1,088.9 1,131.8 787.0 122.4 24.7

147.3 141.7 97.2 12.1 3.9

133.0 139.0 98.2 9.8 1.1

34.7 31.7 20.3 – –

4.3 0.7 1.6 – –

142.4 353.2 246.0 34.3 2.0

35.1 43.1 28.6 1.5 1.2

– (1.1) – (0.7) –

(0.9) (1.8) – – –

– – – – –

– – – – 5.1

– – – – (5.2)

108.2 313.0 217.4 33.5 0.9

27.0 110.6 70.6 16.4 –

81.2 202.4 146.8 17.1 0.9

– – – 0.2 –

81.2 202.4 146.8 16.9 0.9

– 30.6 21.8 – –

81.2 171.8 125.0 16.9 0.9

3.8 14.7 5.1 – –

85.0 186.5 130.1 16.9 0.9

528.8 342.3 282.2 20.7 5.7

– – (70.0) (0.2)

613.8 528.8 342.3 37.4 6.6

1.51 3.82 3.01 1.03 0.08

1.48 3.73 2.91 1.00 – (1)

1.51 3.24 2.57 1.03 0.08

1.48 3.17 2.48 1.00 – (1)

1.58 3.52 2.67 1.03 0.08

1.55 3.44 2.58 1.00 – (1)



ADDITIONAL SELECTED FINANCIAL INFORMATION

Years ended December 31,($ millions except per share amounts) 2004 2003 2002 2001 2000

ReturnsReturn on sales (1) 10.7% 9.5% 5.2% 9.6% 10.0%

Return on assets (2) 7.3% 6.3% 3.2% 7.3% 7.5%

Return on equity (3) 12.3% 11.0% 5.7% 14.0% 13.4%

Financial RatiosWorking capital 557.3 249.0 217.8 215.9 157.7

Current ratio 2.47 1.57 1.55 1.56 1.42

PP&E and intangibles 2,137.2 1,650.2 1,526.4 1,434.0 1,241.8

Total assets 3,850.8 2,938.6 2,775.7 2,651.4 2,387.9

Long-term debt 718.9 399.4 514.9 496.2 548.1

Shareholders’ equity 2,321.7 1,745.3 1,533.0 1,416.0 1,206.8

Long-term debt to

long-term debt plus equity 0.24 0.19 0.25 0.26 0.31

Interest coverage (4) 9.0 8.0 4.1 8.2 8.6

Other Financial DataNet capital expenditures excluding

business acquisitions 252.6 290.5 239.5 340.7 180.5

EBITDA (5) 628.3 451.9 275.4 492.2 344.3

EBITDA – % of revenue 27.0% 23.8% 17.8% 27.4% 27.5%

Operating Earnings 424.5 281.5 142.4 353.2 246.1

Operating earnings – % of revenue 18.3% 14.8% 9.2% 19.6% 19.7%

Cash flow from operations (6) 448.0 258.4 199.2 432.2 236.9

Cash flow from operations per share ($)

Basic 7.75 4.75 3.71 8.16 4.86

Diluted 7.65 4.67 3.63 7.97 4.7

Book value per share ($) (7) 38.19 31.82 28.35 26.63 23.08

Price earnings ratio (8) 17.6 17.1 32.2 11.7 21.1

Weighted average common

shares outstanding (000’s) 57,827 54,430 53,702 52,953 48,722 (1) Return on sales was calculated by dividing earnings from continuing operations by total revenues.(2) Return on assets was calculated by dividing net earnings by quarter average total assets.(3) Return on equity was calculated by dividing net earnings by quarter average total shareholders’ equity.(4) Interest coverage was calculated by dividing operating earnings by net interest expense.(5) Earnings before net interest, taxes, depreciation, amortization, non-controlling interest, dividend income, gain on disposal of investments and

subsidiary, reduction in carrying amounts of investments and property, plant and equipment and discontinued operations. EBITDA is not arecognized measure under Canadian GAAP. Management believes that in addition to net earnings, EBITDA is a useful supplemental measureas it provides an indication of the results generated by the Corporation’s principal business activities prior to consideration of how thoseactivities are financed or how the results are taxed in various jurisdictions and prior to the impact of depreciation and amortization. Investorsshould be cautioned, however,that EBITDA should not be construed as an alternative to net earnings determined in accordance with GAAP asan indicator of Precision’s performance. Precision’s method of calculating EBITDA may differ from other companies and, accordingly,EBITDA may not be comparable to measures used by other companies.

(6) Cash flow from operations including discontinued operations.(7) Book value per share was calculated by dividing shareholders’ equity by common shares outstanding.(8) Year end closing price divided by basic earnings per share.


supplementary information 111

SHARE TRADING SUMMARY

The Toronto Stock Exchange(in Canadian dollars) High ($) Low ($) Close ($) Volume of Shares Value ($)

2004

March 31 67.50 55.89 61.30 17,237,325 1,075,594,484

June 30 69.37 58.16 63.73 20,165,795 1,273,947,954

September 30 73.24 62.55 72.63 16,116,273 1,075,975,183

December 31 78.70 69.32 75.52 18,942,515 1,399,243,059

78.70 55.89 75.52 72,461,908 4,824,760,679

2003

March 31 56.68 47.75 49.28 17,767,381 911,709,933

June 30 54.78 45.30 50.82 18,503,264 935,497,293

September 30 55.73 48.62 51.04 14,606,446 757,572,958

December 31 58.74 50.11 56.75 14,681,330 786,325,972

58.74 45.30 56.75 65,558,421 3,391,106,156

2002

March 31 51.58 36.74 50.97 19,417,580 841,050,535

June 30 61.30 47.61 52.61 18,359,677 1,008,242,529

September 30 54.30 42.50 47.90 15,770,027 763,653,639

December 31 58.23 43.60 50.95 17,546,936 922,073,312

61.30 36.74 50.95 71,094,220 3,535,020,015

The New York Stock Exchange(in U.S. dollars) High ($) Low ($) Close ($) Volume of Shares Value ($)

2004

March 31 50.50 43.30 46.58 11,895,100 562,422,262

June 30 51.30 42.30 48.01 14,534,400 672,015,006

September 30 57.75 46.88 57.50 15,411,400 789,945,011

December 31 66.19 55.85 62.80 18,826,400 1,139,188,768

66.19 42.30 62.80 60,667,300 3,163,571,047

2003

March 31 37.99 31.10 33.37 14,735,800 504,181,610

June 30 40.52 31.25 37.76 13,709,200 495,853,163

September 30 40.22 35.00 37.66 14,961,200 565,302,743

December 31 44.08 37.83 43.68 11,516,100 464,932,490

44.08 31.10 43.68 54,922,300 2,030,270,006

2002

March 31 32.35 23.10 31.96 15,502,400 419,853,448

June 30 39.24 30.00 34.74 17,441,600 616,795,917

September 30 35.00 26.66 30.10 18,290,300 560,468,184

December 31 37.45 27.38 32.54 19,727,900 665,228,176

39.24 23.10 32.54 70,962,200 2,262,345,725



CORPORATE INFORMATION

head office

precision drilling corporation

4200, 150 – 6th Avenue SW

Calgary, Alberta, Canada T2P 3Y7

Telephone: 403-716-4500

Facsimile: 403-264-0251

www.precisiondrilling.com

directors

W.C. (Mickey) Dunn

Robert J.S. Gibson

Patrick M. Murray

Frederick W. Pheasey

Robert L. Phillips

Hank B. Swartout

H. Garth Wiggins

See page 45 for biographies

officers

Hank B. SwartoutChairman of the Board, President and

Chief Executive Officer

Dale E. TremblaySenior Vice President Finance and

Chief Financial Officer

Ian E. KellySenior Vice President,

International Drilling

John R. KingSenior Vice President,

Energy Services

M.J. (Mick) McNultySenior Vice President,

Operations Finance

R.T. (Bob) GermanVice President and

Chief Accounting Officer

Jan M. CampbellCorporate Secretary

lead bank

royal bank of canada

Calgary, Alberta

legal counsel

borden ladner gervais llp

Calgary, Alberta

paul, weiss, rifkind,

wharton & garrison llp

New York, New York

auditor

kpmg llp

Calgary, Alberta

transfer agent and registrar

computershare trust

company of canada

Calgary, Alberta

transfer point

computershare trust company, inc.

New York, New York

ANNUAL SHARE TRADING VOLUMES ($ Millions)

100

80

60

40

0

20

TSX NYSE

2000 2001 2002 2003 2004


shareholder information 113

stock exchange listings

Common Shares of Precision Drilling

Corporation are listed on The Toronto

Stock Exchange under the trading

symbols PD and in addition, effective

February 2, 2004, PD.U, and on the

New York Stock Exchange under the

trading symbol PDS.

voting rights

Common shareholders receive one

vote for each Common Share held.

share split

In 1997, Precision’s Board of Directors

authorized a two for one split of the

Corporation’s Common Shares. The

record date for the split was

September 30, 1997.

trading profile

toronto (tsx: pd)

January 1, 2004 to December 31, 2004:

High: $78.70 Low $55.89

Volume Traded: 72,461,908

new york (nyse: pds)

January 1, 2004 to December 31, 2004:

High: US$66.19, Low US$42.30

Volume Traded: 60,667,300

toronto (tsx: pd.u)

February 2, 2004 to December 31, 2004:

High: US$66.00, Low US$42.75

Volume Traded: 64,300

As a Precision Drilling Corporation

shareholder you are invited to take

advantage of shareholder services or

to request more information

about Precision.

account questions

Our Transfer Agent can help you with

a variety of shareholder related

services, including:

n Change of address

n Lost share certificates

n Transfer of stock to another person

n Estate settlement

You can call our Transfer Agent toll

free at: 1-888-267-6555

You can write them at:

computershare trust company of canada

100 University Avenue, 9th Floor

Toronto, Ontario M5J 2Y1

Or you can email them at:

[email protected]

Shareholders of record who receive

more than one copy of this annual

report can contact our Transfer Agent

and arrange to have their accounts

consolidated. Shareholders who own

Precision Common Shares through a

brokerage firm can contact their

broker to request consolidation of

their accounts.

quarterly updates

If you would like to receive interim

reports but are not a registered

shareholder, please write or call us

with your name and address. To

receive our news releases by fax, please

forward your fax number to us.

online information

To receive our news releases by

email, or to view this annual report,

please visit our website at

www.precisiondrilling.com and refer

to the Investor Relations section.

published information

If you wish to receive copies of the

2004 Annual Information Form as

filed with the Canadian securities

commissions and as filed under Form

40-F with the United States Securities

and Exchange Commission, or

additional copies of this annual

report, please contact:

Corporate Secretary

Precision Drilling Corporation

4200, 150 – 6th Avenue SW

Calgary, Alberta T2P 3Y7

Telephone: 403-716-4500

Facsimile: 403-264-0251

estimated interim release date

2005 First Quarter – April 28, 2005

2005 Second Quarter – July 28, 2005

2005 Third Quarter – October 27, 2005credit ratings

Standard & Poor’s: BBB+

Dominion Bond Rating

Service: BBB

Moody’s Investor Services: Baa2

SHAREHOLDER INFORMATION



GLOSSARY

Borehole – Also known as the wellbore, thisis the hole made by the drill bit, includingthe open or uncased part of the well.

Cased hole – The part of the wellbore whichhas been protected by metal casing toprevent fluid, pressure, and stabilityproblems.

Coil tubing – A long continuous length ofpipe wound on to a spool. The pipe isstraightened prior to pushing into awellbore and recoiled to spool the pipeback onto the transport and storage spool.

Completion – The process of assemblingdownhole tubing and equipment to finish awell so that it can safely produce oil and gas.

Controlled Pressure Drilling® (CPD®) –Drilling with a bottom hole pressure lessthan, equal to or over reservoir pressure.

Directional Drilling (DD) – The use ofequipment and engineering to intentionallychange the angle of a wellbore so thatdrilling efficiency can be enhanced orformations or obstructions can becircumvented in order to reach the pay zone.

Drill string – Comprised of a string oftools, including the drill pipe, bottom holeassembly and any other tools needed tomake the drill bit rotate at the bottom ofthe wellbore.

Electromagnetic (EM) telemetry – Adownhole data communication methodwhich uses the transmission ofelectromagnetic signals along the drillstring to surface where the data is decodedby a surface transceiver.

Gamma Ray logging (GR) – Measures thenaturally occurring radiation informations. Primarily used to differentiatetypes of lithology.

Heavy oil – A viscous oil with an AmericanPetroleum Index (API) gravity of less than22.3 degrees.

Oilsands – Any consolidated orunconsolidated rock that contains ahydrocarbon material with a gas-freeviscosity, measured at reservoir temperature,greater than 10,000 mPa, or that contains ahydrocarbon material that is extractablefrom the mined or quarried rock.

Horizontal drilling – Directional drillingtechnique where the wellbore inclinationapproaches or exceeds 90 degrees from vertical.

Logging-While-Drilling (LWD) technology –Uses downhole tools to measure formationproperties in real time while the well isbeing drilled. Properties measured includeformation resistivity, porosity and density.

Measurement-While-Drilling (MWD)technology – Uses downhole tools tomeasure wellbore properties in real timewhile the well is being drilled. Propertiesmeasured include wellbore inclination andazimuth, downhole pressure, temperaturedrillstring vibration and shock.

Multi-Frequency Resistivity (MFR) – A logging-while-drilling tool that usesmultiple frequencies to accuratelydetermine resistivity measurements inmany different mud and formation types.

Open hole – The part of a well that is notcased. This can be the complete wellboreimmediately after the well is drilled, or thesection of the wellbore that occurs belowthe casing after completion.

Rotary Steerable System (RSS) – A tooldesigned for directional drilling that allowswellbore direction to be controlled whiledrilling with continuous rotation of thedrill string from surface.

RBOP® – Rotating Blowout Preventer

Slickline – A thin non-electric cable usedfor selective placement and retrieval ofwellbore hardware and tools.

Snubbing – A procedure for moving drillpipe or tubing in and out of a wellborewhile the well is under pressure.

Steam Assisted Gravity Drainage (SAGD) –A technique used to extract heavy oilswhich involves the injection of steam intothe producing zone, creating a high-temperature steam chamber in theformation. The injected heat decreases theviscosity of the thick crude and allows it toflow more freely, with gravity’s assistance,to the horizontal production well oftenlocated below the injector.

Underbalanced Drilling (UBD) – When thehydrostatic head of a drilling fluid isintentionally designed to create a bottomhole pressure lower than the formationbeing drilled. The hydrostatic head of thedrilling fluid may be naturally less than theformation pressure or it can be induced.The induced state may be created by addingnatural gas, nitrogen or air to the liquidphase of the drilling fluid. Whether inducedor natural this may result in an influx offormation fluids which must be circulatedfrom the well and controlled at surface.

Well testing – Using specialized equipmentand procedures to obtain essentialinformation about oil and gas wells afterthe drilling process is complete. Typicalinformation derived may include reservoirperformance, reservoir pressure, reserves,damage, permeability, porosity, andformation fluid composition.

Wireline – Single-strand or multi-strandcable used to lower evaluation tools intothe borehole and to transmit data.

TRADEMARKS used in this annual report

Compact™

Controlled Pressure Drilling® (CPD®)

EMpulse™

Hostile Environment Logging (HEL™)

PrecisionLWD™

RBOP®

Revolution®

SuperLance™

Super Single® Light

Super Single® rig

Target Zero™


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